Open TurboTax

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Announcements
Your taxes, your way. Get expert help or do it yourself. >> Get started
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

cancel
Showing results for 
Search instead for 
Did you mean: 
alliro
New Member

We sold a house (capital gain=$158K). In a lower tax bracket (our income=$20K), we should be taxed 0% on long term cap gains. Your software says we owe $28K tax. Why?

The $158K includes depreciation recapture of $33K (added onto our net) but does not include $46K in refurbishment expenses (we entered it, but it is not being included in the cost basis calculations).
1 Best answer

Accepted Solutions
MichaelL1
Level 15

We sold a house (capital gain=$158K). In a lower tax bracket (our income=$20K), we should be taxed 0% on long term cap gains. Your software says we owe $28K tax. Why?

There are a couple things going on.

First the depreciation recapture is ordinary income, not subject to capital gain treatment.

2nd is while you were in 0% capital gains, the capital gains and depreciation recapture has pushed you up to higher tax bracket, causing the capital gains to become taxable. 

Last issue is you need to get the basis corrected on the house to correctly compute the gain.

Did you live in the house as a personal residence for 2 of the past 5 years?  This would change this tax impact greatly if you did.  

View solution in original post

1 Reply
MichaelL1
Level 15

We sold a house (capital gain=$158K). In a lower tax bracket (our income=$20K), we should be taxed 0% on long term cap gains. Your software says we owe $28K tax. Why?

There are a couple things going on.

First the depreciation recapture is ordinary income, not subject to capital gain treatment.

2nd is while you were in 0% capital gains, the capital gains and depreciation recapture has pushed you up to higher tax bracket, causing the capital gains to become taxable. 

Last issue is you need to get the basis corrected on the house to correctly compute the gain.

Did you live in the house as a personal residence for 2 of the past 5 years?  This would change this tax impact greatly if you did.  

About Community

Learn about taxes, budgeting, saving, borrowing, reducing debt, investing, and planning for retirement.

3.48m
Members

2.6m
Discussions

Manage cookies
v