Video instructions and help with filling out and completing Can Form 4797 Investors

Instructions and Help about Can Form 4797 Investors

Hey everyone its NIC Jerusalem here at the Joyce those happy home team wrapping up our quick little video series about tax consequences when selling a home our previous two videos we had chatted about what happens if you're selling your primary residence both you know right away within a two year or less period or maybe you own the home for a long period of time so the last part is what happens if you're selling a property that isn't your primary residence it's an investment it's a rental property what are the tax implications of like in those circumstances well there's two things to think about here Nick one is let's say it was always a rental property you never lived in it okay and then the second one we'll talk about is you once lived in it okay okay so always around the property you never lived in it it's an investment property okay if you owned it for over twelve months its capital gains when you sell it if you've been using it as a rental you are required to take to take depreciation recapture now what's important about that is even if you actually didn't appreciate it if you were doing your own taxes you didn't understand what depreciation meant and you never depreciated it the rules say that you still have to recapture what you should have done okay so it's one of those situations where if you do have rental property and you're doing your own tax return be sure you're doing it correctly okay okay so again when you sell that rental property we look towards basis okay basis is what you purchased the property for plus any improvements you made on the property okay okay then after that we take depreciation recapture and we subtract that from basis okay okay so let's say you purchased the property for 300,000 okay improvements of a hundred thousand mm-hmm so our basis now is three hundred plus one hundred four hundred but you depreciated it over the years and that happened to be an even number of fifty thousand I made a yeah okay so you take that 400 and subtract the 50 mm-hmm okay so now we're at 350 for our basis right we sell the property for 500,000 so we have a gain of 500 minus the 150 which is at the 350 which is 150,000 mm-hmm okay okay we also get to subtract this closing cost okay okay sales car cost of sale let's say that was a 50,000 so now you're looking at gain of a hundred thousand okay okay that gain is taxed at generally speaking capital gains rates again yet the 12-month holding period in order to be a capital gains rates but there's also a piece of depreciation recapture that's going to be taxed at your ordinary income right okay okay so the depreciation recapture will be taxed at what your ordinary income rate is the remaining gains will be taxed at whatever the capital gains rate is for your specific tax bracket and that's if you've you've owned the property for at least a year or more or is that okay so now if I bought a property let's say we fix it up and we sell it in six months after we bought it what is the tax consequences look like in that circumstance then you don't get the capital gains rate okay okay so your attacks ever your income in whatever your ordinary income rate is okay got it perfect so if you have any more specific questions on tax consequences for selling investment properties feel free to call text or email visit us online happy home team comm we can help you get those questions answered absolutely I want to add one thing that you didn't talk about be careful when you're trying to estimate what your taxes are going to be because we tend to estimate too low meaning that we just say okay I'm going to pay 50 percent capital gains on $200,000 so that's $30,000 so after I sell my property because you've already figured out all the math you figure out your gain is 200,000 and a 15% bracket and you say I need to put aside $30,000 that is not enough to put aside and that is because whatever that capital gain is it increases your tax bracket Ryan okay and so your other income might have jumped up a tax bracket okay and so you might not be limited to literally fifteen percent of what you think your capital gain is and that's a common error and people get a surprise when it's time to do their tax return on it yeah they're not taking in kind of the final income picture into into effect they're just looking at just the house and the sale not how does that relate to my income as a whole yes got it great point you know so as you can see things can be complicated and so it's always good to have a very smart and well trained and experienced accountant as we do so again thanks for tuning in and I look forward to opening where we can't