Tax Rates On Capital Gains?

A

atkinson40

New Member
Jurisdiction
California
I'm going to round numbers.

I'm moving into a property for 2 years that I used as a rental. This will give me access to a $500000 maximum capital gains exclusion.

When I sell the house, I will have $550000 in capital gains. I have worked through the worksheets in pub 523 and found that I will have $150000 of unexcludable gain due to the time I rented out the property.

$400000 of the gain will be excluded from taxes.

The $150000 of nonexcludable gain will not be taxed as ordinary income. The first $80000 will be taxed at 0 percent or no tax. The other $70000 will be taxed at 10 percent or $7000.

Do I have the correct approach for the nonexcludable gain?

Thanks
 
I will receive $500000 from the sale of a rental property. I don't want to be a landlord anymore.

I already have about $500000 in mutual funds that were rolled over from an IRA. I don't need this as income, but am beginning to take $30000 annual withdrawals because in another six years I will be facing MRD's anyway. These withdrawals are taxed.

Where can I put the $500000 from the sale of the rental so I will not need t to worry about being taxed on the income or the principle if I withdraw from it?

Thanks
 
zddoodah said:
Seems like this should be covered in the other thread. Also, seeking investment advice from anonymous strangers on the internet seems like a bad idea.
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Thanks zddoodah.

Other thread is taxation. This is investment. I've found useful help on these forums. I' m looking for a direction to investigate and educate myself.

I' m looking into California Municiple bond funds, but am not sure if the principle goes up or down, what are the tax implications. I think the interest will be tax free. Maybe I draw out the interest every year, and treat the principle gain/loss separate for tax purposes?
Thanks
 
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None of our posters will be allowed to provide investment advice.

I suggest you contact a few licensed investment counselors/brokers, a CPA, or licensed financial advisor.

It can be very risky to solicit investment advice from UNKNOWN entities.

It can be equally risky to seek investment advice from licensed individuals, too.

You impress me as a savvy person.
Why?
Very few people ever accumulate $500,000, much less TWICE that amount.
It might be wise to continue TRUSTING your instincts.
By the way, I sold ALL of my investment properties 30 years ago.
One of the smartest financial decisions I've ever made.
 
army judge said:
None of our posters will be allowed to provide investment advice.

I suggest you contact a few licensed investment counselors/brokers, a CPA, or licensed financial advisor.

It can be very risky to solicit investment advice from UNKNOWN entities.

It can be equally risky to seek investment advice from licensed individuals, too.

You impress me as a savvy person.
Why?
Very few people ever accumulate $500,000, much less TWICE that amount.
It might be wise to continue TRUSTING your instincts.
By the way, I sold ALL of my investment properties 30 years ago.
One of the smartest financial decisions I've ever made.
Click to expand...

Thanks Army Judge,

I imagine the tax rate on capital gains and if the first $80K is exempt will be covered in IRS pubs somewhere. I've got a couple of years to figure it out.

I've also got a couple of years to figure out what to do with the $500K.

Thanks
 
atkinson40 said:
I've also got a couple of years to figure out what to do with the $500K.
Click to expand...

My father survived the market crash of 1929.

He was always leery and suspect of banks, as were many of the greatest generation.

Dad was also a frugal, thrifty man.

He once said to me, "If you don't know what to do with your money, bury it in the backyard, hide it in the basement, or secure it in a safe deposit box. Sure, it won't draw interest, but if you secrete away $1,000, you'll never lose it's value."

Translation, once you obtain so much money, you don't need to put it to work and risk. You simply keep it safe. Dad died a very wealthy man, leaving mother a tidy nest egg.
 
Tax Counsel said:
For the rules regarding the sale of you personal residence, see IRS Publication 523. The tax law is the most frequently changed body of federal law and thus you want to keep up with how the rules evolve while you hold the property.
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Thanks Tax Counsel

I've taken the worksheets from pub 523 and imbedded them in an excel spreadsheet where I can plug in the numbers and the results will be cranked out by excel. This makes it easier to change the numbers and get the results.

I just need to do more research on how the capital gains are taxed. So far what I've found is the first 80K are not taxed.
Then the next level after $80K is taxed at 10 percent.

In addition the depreciation I took over the years while renting the property seems to be taxed as regular income, so there must be a place on a form for me to enter it as regular income.

Thanks
 
army judge said:
My father survived the market crash of 1929.

He was always leery and suspect of banks, as were many of the greatest generation.

Dad was also a frugal, thrifty man.

He once said to me, "If you don't know what to do with your money, bury it in the backyard, hide it in the basement, or secure it in a safe deposit box. Sure, it won't draw interest, but if you secrete away $1,000, you'll never lose it's value."

Translation, once you obtain so much money, you don't need to put it to work and risk. You simply keep it safe. Dad died a very wealthy man, leaving mother a tidy nest egg.
Click to expand...

Thanks Army Judge

I came to San Diego in 1976 for the first time right out of the Army. No family and only one friend.

I had a duffle bag and $2000. It took me 13 years to put myself through electrical engineering college. I then worked 18 years in that field and retired 15 years ago at age 51.

I never made more than $85K. But lived frugally. My moto is/was "it's not how much you make, it's how much you keep"

In addition to 2 X $500K I also paid off my $1.5 Million principle residence and have a $2800 monthly take home retirement income from SS and pension from when I worked.

You gave good advise. I think I'll just find a way to invest the $500K in California muni bonds. It's a long drop from the $3K a month I could get from renting the place, but I'm tired of being a landlord. The eviction moratorium, pushed me over the edge.

Thanks
 
atkinson40 said:
I just need to do more research on how the capital gains are taxed. So far what I've found is the first 80K are not taxed.
Then the next level after $80K is taxed at 10 percent.
Click to expand...

Not correct. The zero percent rate for capital gains applies if your total taxable income is $80k or less and your filing status is married filing a joint return. So you need to factor in all of your taxable income to determine the rate, not just the amount of capital gain. There are a number of online calculators that can help you estimate the tax on the gain but you'll need to estimate what your total taxable income, including the gain, will be to get accurate results.

 
Tax Counsel said:
Not correct. The zero percent rate for capital gains applies if your total taxable income is $80k or less and your filing status is married filing a joint return. So you need to factor in all of your taxable income to determine the rate, not just the amount of capital gain. There are a number of online calculators that can help you estimate the tax on the gain but you'll need to estimate what your total taxable income, including the gain, will be to get accurate results.
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Thanks Tax Counsel,

A big part of my income is SS, much of which is not taxable. In addition, the married filing jointly standard deduction reduces my "taxable" income to almost nothing.

Thank You for clarifying that for me. I can investigate how to include the "taxable" income along with my capital gains tax for that year.
 
Tax Counsel said:
Not correct. The zero percent rate for capital gains applies if your total taxable income is $80k or less and your filing status is married filing a joint return. So you need to factor in all of your taxable income to determine the rate, not just the amount of capital gain. There are a number of online calculators that can help you estimate the tax on the gain but you'll need to estimate what your total taxable income, including the gain, will be to get accurate results.
Click to expand...

Thanks Tax Counsel,

I just read this.

Topic No. 409 Capital Gains and Losses | Internal Revenue Service

My earned income is maybe $5K once I take the standard deduction.

So if I have $150K of capital gains, that will give me a total of $155K taxable income.

This will put me in the 15 percent capital gains bracket. So does this mean the $150 will be taxed at 15 percent and the $5K earned income at the normal tax bracket?

Thanks
 
atkinson40 said:
Thanks Tax Counsel,

A big part of my income is SS, much of which is not taxable. In addition, the married filing jointly standard deduction reduces my "taxable" income to almost nothing.

Thank You for clarifying that for me. I can investigate how to include the "taxable" income along with my capital gains tax for that year.
Click to expand...

It doesn't work that way. You don't just get to deduct the social security from your total income. The sum of your income for the year including social security and the capital gain both go into determining BOTH what the capital gains rate is AND how much (if any) of your SS income is taxed.
 
flyingron said:
It doesn't work that way. You don't just get to deduct the social security from your total income. The sum of your income for the year including social security and the capital gain both go into determining BOTH what the capital gains rate is AND how much (if any) of your SS income is taxed.
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Thank You flyingron,

My SS, my wife's SS and her income are less than $60K gross. Add that to a taxable capital gain of $150K and you get $210K. This leaves me in the 15 percent capital gains bracket that has an upper limit of $501600.

I just need to educate myself on which forms I need to fill out and submit to document all this.

Thanks
 
atkinson40 said:
I just need to educate myself on which forms I need to fill out and submit to document all this.
Click to expand...

If you want to avoid IRS and state tax issues, you serve yourself best by seeking tax guidance and advice from a CPA or tax attorney.

Why?

You do want to pay the minimum amount of taxes according to the various laws in play, right?

Hence, spend a couple thousand to save tens (if not hundreds) of thousnds of lovely US Dollars!
 
army judge said:
If you want to avoid IRS and state tax issues, you serve yourself best by seeking tax guidance and advice from a CPA or tax attorney.

Why?

You do want to pay the minimum amount of taxes according to the various laws in play, right?

Hence, spend a couple thousand to save tens (if not hundreds) of thousnds of lovely US Dollars!
Click to expand...

Thanks Army Judge,

I've consulted a CPA and verified I'm on the right track.
 

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