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choate_sc
New Member

Will we have to pay capital gains on four rental homes we are selling in TN?

We built them personally over 5 years ago. Since they are rented all year long and we have never lived in them, what should we be expecting to pay in capitol gains? Also, can we take that profit and put it into something else within a certain time period without paying the tax? Thank you!

1 Best answer

Accepted Solutions
TomYoung
Level 13

Will we have to pay capital gains on four rental homes we are selling in TN?

"...what should we be expecting to pay in capitol gains?"

Well, nobody here can provide any answer with precision since we don't know what your gain is or what tax bracket you'll be in when you prepare your income tax return.

Your gain will be long term, of course, but not all of the gain will be taxed at the statutory capital gains rates of:

  • 0% if your taxable income puts you in the one of the two lowest tax brackets
  • 15% if your taxable income puts you in the next 4 higher tax brackets
  • 20% if your taxable income puts you in the highest tax bracket.

The accumulated depreciation you've taken (or should have taken) over the last 5 years - which reduces your basis when calculating gain on sale - will be taxed as "depreciation recapture"; this will be your ordinary income tax rate up to a maximum 25 percent rate.

Tom Young

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4 Replies
SweetieJean
Level 15

Will we have to pay capital gains on four rental homes we are selling in TN?

And who are "we?"  Spouses? A Partnerhship?
SweetieJean
Level 15

Will we have to pay capital gains on four rental homes we are selling in TN?

and are you located in a different state?  It appears that you may be a company of some type in SC.
TomYoung
Level 13

Will we have to pay capital gains on four rental homes we are selling in TN?

"...what should we be expecting to pay in capitol gains?"

Well, nobody here can provide any answer with precision since we don't know what your gain is or what tax bracket you'll be in when you prepare your income tax return.

Your gain will be long term, of course, but not all of the gain will be taxed at the statutory capital gains rates of:

  • 0% if your taxable income puts you in the one of the two lowest tax brackets
  • 15% if your taxable income puts you in the next 4 higher tax brackets
  • 20% if your taxable income puts you in the highest tax bracket.

The accumulated depreciation you've taken (or should have taken) over the last 5 years - which reduces your basis when calculating gain on sale - will be taxed as "depreciation recapture"; this will be your ordinary income tax rate up to a maximum 25 percent rate.

Tom Young

SweetieJean
Level 15

Will we have to pay capital gains on four rental homes we are selling in TN?

can we take that profit and put it into something else within a certain time period without paying the tax? 

Only if you do this exactly as required:

https://www.irs.gov/newsroom/like-kind-exchanges-under-irc-code-section-1031

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