Investment Taxes

What Are the Taxes Due on the Sale of Investment Property?

Capital Gains Tax:  Is 15% for most taxpayers, for those with annual income less than $400K per individual or $450K per married couple who file jointly.    

Section 1411 Medicare Surtax or Affordable Care Act (ObamaCare) Surtax:  3.8% only applies to those who have an annual income of over $200K per individual or $250K per married couple filing jointly.

Combined Tax Rate:  That means that those with an annual income over $400K or couples who file jointly making over $450K, would be taxed 23.8% in taxes on the profits from their investments!

Depreciation Recapture:  No matter what your annual income, the portion of your total gains that were depreciated is taxed at 25%. That is called Depreciation Recapture and is often the biggest surprise for most investors.

Tax-Free Exchange?

I know you often see internet mention of a tax-free exchange, but it is really a tax deferred exchange. You get to use the money that you would have paid to the IRS today, and as long as you don’t sell the property, you don’t have to pay the taxes on it. Not unlike a 401K

What about State Taxes

Every state has different rules. In Washington we have an Excise Tax. That is like a sales tax and cannot be deferred in an exchange. If Washington were to enact a capital gains tax that would likely also be exchangeable.

Happy Investing!

Today's blog courtesy of Kevin Hummel, McFerran Law