how does cap gains tax work for rental properties?

[Anonymous]

She can deduct the RE agent fees as well as any closing costs paid by the seller.

[Anonymous]

Anonymous wrote:

Anonymous wrote:If she’s been declaring the income from her rental on her taxes then she’s been taking depreciation. Once she sells she’ll need to recapture that. Normally that’s where the insane tax bill comes in.

Close by no cigar. Even if she hasn’t been claiming depreciation the IRS assumes she was and recaptures it regardless.

Assumes, even though they can see her old returns?

[Anonymous]

Anonymous wrote:

Anonymous wrote:What does "recapturing" mean? Sorry, I am not a money person. Thanks for your reply.

-op

So basically all of the writeoffs she was eligible for, once she sells the government wants 25% of them back as "recapture tax". If she has gains left after that, then she owes cap gains on those.

All the write-offs, including maintenance and management fees, or on the depreciation part?

[Anonymous]

Anonymous wrote:If she’s been declaring the income from her rental on her taxes then she’s been taking depreciation. Once she sells she’ll need to recapture that. Normally that’s where the insane tax bill comes in.

It's large but not insane. 25% of the free money gained due to appreciation up to amount of depreciation, which is limited to building value not land value.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If she’s been declaring the income from her rental on her taxes then she’s been taking depreciation. Once she sells she’ll need to recapture that. Normally that’s where the insane tax bill comes in.

Close by no cigar. Even if she hasn’t been claiming depreciation the IRS assumes she was and recaptures it regardless.

Assumes, even though they can see her old returns?

I mean they require it whether she actually took the depreciation expense or not.

[Anonymous]

https://www.1031exchange.com/calculators/

Anonymous wrote:

Anonymous wrote:There are several online capital gains calculators that are easy to use. Kind of surprising that she didn't spend 5 minutes running the numbers. The only number you need that might be somewhat difficult to figure out is how much depreciation taken since purchase.

Just to give you an idea of a 350k house that I'm about to sell. It's almost paid off and this is what the calculator says:

15k fed depreciation recapture
15k VA cap gains
30k fed cap gains

So total taxes equals approx 16% of sales price.

can you link the calculator please?

[Anonymous]

Anonymous wrote:What does "recapturing" mean? Sorry, I am not a money person. Thanks for your reply.

-op

Hopefully she’s been taking depreciation on them all of these years. If so, she probably has huge losses built up that you can only take when you sell. You cannot take them against ordinary income u til the year of sale, so it would be dumb if she has built in losses to sell them all at once unless she makes millions of dollars since she will lose the tax credit. She really really needs to have her accountant (who should know the basis on each house) figure this out.

[Anonymous]

Anonymous wrote:She can deduct the RE agent fees as well as any closing costs paid by the seller.

Yes

[Anonymous]

Anonymous wrote:

Anonymous wrote:What does "recapturing" mean? Sorry, I am not a money person. Thanks for your reply.

-op

Hopefully she’s been taking depreciation on them all of these years. If so, she probably has huge losses built up that you can only take when you sell. You cannot take them against ordinary income u til the year of sale, so it would be dumb if she has built in losses to sell them all at once unless she makes millions of dollars since she will lose the tax credit. She really really needs to have her accountant (who should know the basis on each house) figure this out.

Losses can be carried forward. Also, depending on how she’s been reporting the rental income, she may need to sell all of the properties to trigger the ability to deduct the losses against regular income.

Agree that OP’s sister needs to talk to her accountant. This is too complicated & fact dependent to give a definite answer here.