Video instructions and help with filling out and completing Where Form 4797 Properties

Instructions and Help about Where Form 4797 Properties

Music so how to calculate a capital gain have you been through this today okay well then we're gonna go through it kind of quickly I've learned that with tax law it takes me about ten times to learn it so this is what I found I'm going to use a California example because in Ohio we don't have very many million dollar homes but if you had a property that you paid five hundred thousand dollars for and you sold it for a million dollars you would think your gain would be five hundred thousand dollars right not quite correct you have what's called a basis and that's your purchase price of the home that would be the five hundred thousand dollars and then your basis gets adjusted by a couple of things one the investment that you made into the property by making repairs that would be capital improvements or twenty five thousand dollars and then we all know that we have depreciation when we own real estate how many of you understand how depreciation works okay then I'm going to give you a brief example of what depreciation is the government says our houses are a lot like this little clicker that if I paid twenty seven thousand dollars for this clicker that one tenth or one percent of the value of it over twenty seven and a half years goes away and at the end of twenty seven and a half years this clicker would have no value now if I put it in a box and saved it and kept it clean and put new batteries in it the clicker would still have value right well the government says that depreciation or that one twenty seven that you take away every year is a loss and it's an expense against your income so although your property is increasing in value because properties increase in value if you take care of them the government allows you to write off 127th of that property every year as an expense so when you're thinking about $1,000 a month income or twelve thousand dollars a year if you have a hundred thousand dollar property you're probably going to be writing off about three thousand dollars in expenses for your depreciation so that income is offset and when you grasp hold of that that's when real estate become even more attractive because not all the income that you are in an urn is actually taxable so let's go back to our example now I went off on a tangent your purchase price was $500,000 that depreciation in this example was $100,000 and we did 25,000 in repairs so the adjusted basis is four hundred and twenty five thousand dollars so you're going to pay taxes on the difference of that adjusted basis and what you sell it for or five hundred and seventy five thousand dollars right so let's see how much tax that is the depreciation recapture would be about twenty five thousand dollars your fifteen percent federal capital gains tax would be seventy one thousand two hundred and fifty dollars and in the great state of California your state tax would be nine point three percent or you would be paying fifty three thousand dollars in taxes for a total of a hundred and forty nine thousand dollars so if you sold the house just took the cash you would pay of your five hundred and seventy five thousand dollars you were putting in your pocket you would give away a hundred and forty nine thousand dollars of it well wouldn't it be nice to be able to keep that you're going to be able to do that by doing that 1031 exchange or exchanging into other properties and this is how that works you're gonna save twenty-nine percent in taxes by doing that exchange now that's an exchange on a rental property internal properties as this example you