Investment property taxes

So, during 2014 you sold some real estate, be it a primary residence, a rental, or even an investment property, and of course there shall be tax consequences on the selling of real estate. What one has to be mindful about, is that a person is taxed on the gain or profit of the sale, and NOT on the full sale. The gain on the sale is calculated by subtracting the sale amount (or amount realized) from the “adjusted basis” on the real estate that was sold.

The “adjusted basis” is calculated by taking the original purchase costs, which should include most closing costs when the property was purchased, plus any major improvements that was made. A major improvement is any expense on a property that either significantly improves the value of the property, or prolongs the life of the property. Furthermore, any depreciation on the property is subtracted from the purchase costs, and/or on any major improvements. Generally speaking, deprecation would (or should) be claimed when the property is being rented out, or used for business purposes. If the property is being used as a primary residence, or being held onto as an investment, then no depreciation would be claimed. So, after adding major improvement costs and subtracting depreciation one would get the “adjusted basis” figure.

The tax rate for the gain in real estate depends if a person holds on to a property for a short term, or for a long term. If a person holds onto the property for the long term, then he/she would be able to take advantage of the more favorable maximum capital gain tax rate, which is maximized for 2014 & 2015 at 20% (it was maximized at 15%, but Congress increased it to 20% back in 2013), otherwise that gain on the sale of real estate would be subject to a person’s ordinary marginal tax rate, which is currently at 10%, 15%, 25%, 28%, 33%, 35%, and/or 39.6%. Furthermore, any asset (which includes real estate), would be considered as long term if it is held or owned by a person for more than one year (i.e. at least a year and a day).

If you did sell real estate in 2014 (or plan to do so in 2015), please contact us at info@kayatax.com, and we would be more than happy to go over the tax consequences on your real estate sale.