Any Tax Experts Out There

[Jim Sentry]

I sold 2 Rental Properties this year for a Gain of 122K.

Because of Depreciation and Capital Gains Rates I have to pay an additional 47K in Fed and St Taxes.

Anyway I could reduce this.

[Jim Sentry]

Going into a property exchange (1031) would not accomplish our goal of getting us out of the rental property business.

[Naturalized-Texan]

I sold 2 Rental Properties this year for a Gain of 122K.

Because of Depreciation and Capital Gains Rates I have to pay an additional 47K in Fed and St Taxes.

Anyway I could reduce this.
Did you make any improvements to the property that are not fully depreciated? If so, you can include the unappreciated part of the improvements in the basis of the property when calculating the gain.

Unfortunately, if your rental properties and all improvements are fully depreciated, the entire selling price, excluding the land, is a capital gain. Of course, land is not depreciable, so the capital gain on the land is the difference between the selling price of the land and the purchase price.

However, I'm pretty sure that the capital gains tax rate on property that has been held for more than 5 years is only 5% and is only 8% on property that has been held for more than 1 year. It's been 5 years since I worked as a tax preparer and tax instructor for H&R Block, so I am not 100% positive.

I would suggest that you call your local H&R Block office and explain your situation to them. H&R Block will give you free tax advice and there is usually at least one office in most areas that is open year-round for that purpose. You should be able to find an office near you at the H&R Block web site (http://www.hrblock.com/).

[Jim Sentry]

Thanks for the tips. I think I am facing at a 25% tax rate on the depreciation I've taken over the years.

[Naturalized-Texan]

Thanks for the tips. I think I am facing at a 25% tax rate on the depreciation I've taken over the years.
I forgot about the rules for recovery of depreciation. Also, the 5% and 8% rates I mentioned above apply to the lower income tax brackets. In higher tax brackets, capital gains are taxed at higher rates.