If you have owned your property for a while you have probably seen a lot of appreciation. When it is time to sell you need to know what your potential tax bite will be.
You may owe a combination of federal capital gains tax, state income tax on the gain, and the Net Investment Income tax (aka Obamacare tax). You may also owe something called “Depreciation Recapture”.
Unfortunately for us Californians, we have the highest combined tax rate in the entire country. That is because California income tax tops out a whopping 13.3%! But don’t worry, politicians are very frugal and never waste our money, right?
By the way, there is no “Capital Gains” tax in California. Your capital gains in California are actually taxed as ordinary income.
Before you put your property on the market, you need to talk to your tax professional about the sale and get an estimate on your taxes when you sell. You may owe less than you think, or you may owe more than you think depending on a lot of factors. Perhaps your tax advisor can help you reduce your tax bill.
By the way I don’t give tax advice. I simply give tax awareness so you can be a bit more informed when it is time to sell your building. I have seen a few apartment owners pay horrendous tax bills because they didn’t bother to do their due diligence and talk to their advisor. One lady told me one time “I do my own taxes and I live in this 4plex so I’m not worried about taxes”. Wrong. She nearly fainted when she finally realized how much she would owe after she sold her building.
If you are interested in learning about some tax deferral strategies, see my other articles in the taxes section of this website.
By the way I don’t give tax advice. I simply give tax awareness so you can be a bit more informed when it is time to sell your building.
For any specific questions about your situation please contact your tax advisor.
Do you have some questions about your property? Please contact me at firstname.lastname@example.org