I am confused about capital gains...?

Question

I am selling my apartment building I have owned for nearly 4 years. Are my options to buy a new property or can I use that money to improve my home. Or does that not offset the gain.
Also,
just checking... tax on capital gains is based on your tax bracket or do they have a set taxable percentage.
Thanks so much!

Answer 1

The only problem with doing a like kind exchange is that the buyer of your property has to be the one giving you ownership of the like kind property in exchange. You can't sell your building for cash, and then turn around and use the cash to purchase another building. That is not a like kind exchange. Taxpayer A owns building A. Taxpayer B owns building B. In the like-kind exchange, Taxpayer A gives ownership of building A to Taxpayer B, and Taxpayer B gives ownership of building B to Taxpayer A. That transaction would qualify as a like kind exchange. There may also be other ramifications, such as if you sell your property in a like kind exchange, but you receive cash (or other assets) in addition to the new property (your building is worth more than the building you receive in return), then you have taxable gain to the extent of the cash (or other assets) received.

In a straight sale, since you have owned the building for 4 years, the taxable gain would qualify as long term capital gains, which would be taxed at your marginal rate, up to a maximum rate. Also, if you claimed depreciation on the building over the years you have owned it, then you would need to recapture the depreciation and the amount of depreciation taken in previous years would be reported as ordinary income (taxed at your marginal rate). Your taxable capital gains would be reduced by the depreciation recapture (thereby changing the nature of taxable long term capital gains to ordinary income).

Answer 2

If the apartment building was a business property then when you sell it you will have long-term capital gains (taxed at 15% if you are in the 25% or higher bracket). If you exchange the apartment building for a similar property then you may be able to defer some or all of the gain.

If you use the money to improve your home, that will not offset the gain.

If you lived in one of the units the situation is more complicated and not all of the gain will be taxed. Didn't seem like that was your situation though.

Answer 3

You would be taxed on the gain of the apartment building with the long term capital gain rate which should be 15% in your case.

If you use the money to improve your principal residence, it does absolutely nothing. You're still taxed on the entire gain.

If you buy a new rental property, then you want to talk to your real estate agent to suggest to you a good §1031 exchange facilitator. A §1031 is a nontaxable exchange of like-kind assets. In your case, rental property for a rental property. Your gain is deferred but the basis in your old building carries over to the new building. A good facilitator will walk you through everything to make sure it's tax free (there are certain times where you will still be taxed but normally, it's if you get any cash outta the deal).

Answer 4

You may be able to put the money you gain from the sale into a new investment property, and defer the gain. If you put it into improvements on your home, you'll have to pay the capital gains tax for the year when you sell.

Capital gains tax for most types of assets has two types, long and short term. Short term capital gains, not held more than a year, are taxed like ordinary income, with tax percent based on your bracket. Long term (help over a year) are taxed either at 5% (if your bracket is under 25%) or 15% (if your bracket is 25% or higher).

Special rates apply to capital gains on certain types of assets: these are 25% (for unrecaptured section 1250 gain) or 28% (for collectibles gain or for gain on qualified small business stock minus the section 1202 exclusion).

Answer 5

Taking funds from your commercial property for use in your personnal property is not a taxable event. For the details of the rules on capital gains, etc, check the official IRS site. For this situation, the attached article should give you a starting point.

Answer 6

Well, the thing is that you've been using it as an investment property - for a business.

You should check with an accountant if you can roll it into a new property (you may be able to) but if you want to realize the gains as profit and take it for your own home, you'll probably have to pay a tax.

Answer 7

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Answer 8

K Soze nailed it. Your facts call out for a like kind exchange.

Answer 9

This is not a question for this forum. Check with your financial planner or accountant, they will know better than we do. That is what you pay them for.