What is capital gains rate on the sale of home

[KMACK]

I have a client with no taxable income (her taxable social security and pension combined are less than her standard deduction).  However, she sold a home for $1,400,000 that she purchased in 1973 with a cost basis of less than $100,000.  With her exclusion her capital gain on the sale is close to $1,000,000.

Does she have to pay capital gains tax on this transaction?

KMACK

[sjrcpa · Accepted solution]

Maximum rate is 20%. Work thru the Sch D tax worksheet to get the exact amount.

[abctax55]

Yes.   And the rate isn't any 'different' than the rate on any other LTCG.

Can I assume you've asked about improvements over that time line?

[abctax55]

Same house you've been asking about the last few days?

https://proconnect.intuit.com/community/proseries-discussions/discussion/re-inherited-home-form-1041...

[KMACK]

Ok.  I thought the rate might be lower or zero if she had no taxable income.

[KMACK]

Different house.

[KMACK]

Is the rate lower if the client otherwise has not taxable income?

[Accountant-Man]

<<Does she have to pay capital gains tax on this transaction?>>

Why wouldn't she pay tax? She made over $1MM in gain. You do know the maximum exclusion, right?

Her federal taxes on the gain would be part zero, part 15%, part 20%.

[KMACK]

Okay.  So some of the gain would be at the lower rate.

[KMACK]

Got it.  Thanks.

[abctax55]

It IS lower... depending on all other income.  20% is the MAX on just the gain; the other income can be pushed into a higher bracket due to such a large gain.  As Susan said, you should spend a bit of time running thru the Sch D worksheet of the computation of the tax.

[itonewbie]

Agree with Susan and Anna.

If there was depreciation taken on or after May 7, 1997, there'd be unrecaptured §1250 subject to a max of 25%.

Given the property was purchased back in 1973, she may also have §1250 recapture, subject to tax as ordinary income, if depreciation was taken in excess of straight line.

[dkh]

Why not just enter the information into the tax return and see what the outcome is? 

[rbynaker]

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@abctax55 wrote:

It IS lower... depending on all other income.  20% is the MAX on just the gain; the other income can be pushed into a higher bracket due to such a large gain.  As Susan said, you should spend a bit of time running thru the Sch D worksheet of the computation of the tax.

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And there will also be the side effect of making 85% of SS taxable (as opposed to the 0% she's used to) so the effective tax rate will be higher than the marginal capital gains tax rate.

But I have trouble feeling too bad here, she made over $1M.

[TaxGuyBill]

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@rbynaker wrote:.

But I have trouble feeling too bad here, she made over $1M.

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I point out to the clients the opposite ... it is a GOOD thing that she made over $1M.  Yes, there will be a lot of tax, but that is a HUGE amount of profit.

@KMACK   Was she ever married?  If so, does a step-up in Basis apply for her spouse's ownership when he died?

[abctax55]

GOOD point Bill...

[itonewbie]

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@TaxGuyBill wrote:

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I point out to the clients the opposite ... it is a GOOD thing that she made over $1M.  Yes, there will be a lot of tax, but that is a HUGE amount of profit.

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Reminds me of Ross Perot, if anyone still remembers the campaign he ran.  He said something to the effect of having to pay tax on his income was a good thing.