Does anyone know about a capital gains tax holiday in 2008 for the 10-15% income tax bracket?

Question

If I sell my rental property this year as opposed to next year will I have to pay capital gains? I am in the 10-15% income tax bracket. Will the capital gains be calculated as income for the year I sell it and possibly send me into the next bracket? Does this have to be a long term sale to qualify?

Answer 1

First of all, let me explain this. Since you rent out your property, most likely you already depreciate it. Depreciation is an annual deduction representing a method for recovering your investment's cost. Depreciation is calculated on the portion of your investment that represents the cost of the building. No depreciation is allowed on the land costs of the rental property. A reasonable allocation should be made between the two.

Depreciation on residential real property is computed on a straight-line basis over 27.5 years using a midmonth convention. A midmonth convention allows you one-half month's depreciation for the first month the property is put in service, regardless of the day in the month it is placed in service. For example, if you buy the property on April 30 in rentable condition, you'll be allowed eight and a half months' depreciation for the year. Since 27.5 years represents 330 months, you'll receive 8.5/330 of the building's cost in depreciation in the first year and 12/330 each subsequent full year the property is used as a rental.

Recapture occurs on the sale of the property. The maximum amount of recapture is the amount of depreciation claimed or the amount that should have been claimed. That is, recapture occurs even on amounts that you failed to claim on the property. Recapture can be less if the selling price is less than the original cost of the property. The selling price allocated to the building might be less than the original cost if the building was destroyed or if it will be demolished in the sale. Depreciation recapture is taxed at a maximum rate of 28 percent, but can be less, depending on your level of income. Any gain beyond the original cost of the building is taxed at the maximum rate applicable to long-term capital gains, which is currently 15 percent. Although your tax braket is at 10-15% and the capital gain would be 5%, due to the fact that the gain and the recapture, these additional income may bump up your tax bracket and you will need to pay 15% for capital gain.

If you really need to and I do not recommand this, you may ask your real estate broker to do 1031 Exchange (if you intent to buy another house).

1031. Exchange of property held for productive use or investment

(a) Nonrecognition of gain or loss from exchanges solely in kind

(1) In general

No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.

(2) Exception

This subsection shall not apply to any exchange of—

(A) stock in trade or other property held primarily for sale,
(B) stocks, bonds, or notes,
(C) other securities or evidences of indebtedness or interest,
(D) interests in a partnership,
(E) certificates of trust or beneficial interests, or
(F) choses in action.

For purposes of this section, an interest in a partnership which has in effect a valid election under section 761 (a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership.

(3) Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged property

For purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if—

(A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or
(B) such property is received after the earlier of—

(i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or
(ii) the due date (determined with regard to extension) for the transferor’s return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs.

You may want to move there. And you just pay the recapture of the home.

If you have a gain from the sale or exchange of your main home, you may be able to exclude from income all or part of the gain.

This exclusion, up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns, is allowed each time that you sell your main home, but generally no more frequently than once every two years.

To qualify for this exclusion of gain, you must meet ownership and use tests.

*
Ownership Test: During the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years.
*
Use Test: During the 5-year period ending on the date of the sale, you must have lived in the home as your main home at least 2 years.

If you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home because of health reasons, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.

If you can exclude all the gain from the sale of your home, you do not report the gain on your federal tax return. If you cannot exclude all the gain from the sale of your home, use Schedule D, Capital Gains and Losses, of the Form 1040 to report it.

Answer 2

From 2008 to 2010 the long term rate is 0% for those in the 10-15% bracket. Remember that any the portion of any gain that would be above the bracket would still be at 15%.

I don't know the size of the brackets, of course, but if the taxable income limit for the 15% bracket were $30,000, you had $20,000 regular income and $50,000 LTCG, only $10,000 would get the "extra favorable" treatment (5% now, 0% later), the other $40,000 would be at the general LTCG rate of 15%.

See the link below for one reference.

Answer 3

Please understand our tax code........ while somebody incredibly makes money for the 1st time the are tax at are optimal fee (wealthy human beings) often at 35%. Then in the event that they want to invest say in a organisation they very own loan that money so yet another organisation can be triumphant and employ human beings. that money they make investments even no be counted if it incredibly is contained in the inventory industry or maybe us minions who've 401k's in case you want to take the prospect and placed your money to artwork to make additional money then it incredibly is taxed at a capital effective properties tax of 15%. So in essence they're paying 50% taxes on the money they have made. So is 50% sufficient for Obama to have additional money so he could make the alternative of which organisation the government invests in. Like Solyndra or killing the Keystone pipeline so his buddy Warren Buffet can use the prepare gadget that he owns ( Burlington) to transport gasoline from Canada to states with refineries. Yep while you're buds with Obama he will make you very wealthy. it incredibly is why Buffet is asserting human beings like him ought to pay greater. He reaps the income of extensive organisation deals to make Billions. Then Obama gave 3 BILLION to Soros so he can drill off of Brazil and we are in a position to be his perfect shopper. See human beings in extreme places all pat one yet another on the decrease back mutually as the yank stiff gets to pay the fee. Yep Gm is genuine worthwhile now additionally and yet they paid NO Taxes final twelve months and China buys greater GM vehicles than the U.S. yet heck China is construction maximum of them and paying pennies on the greenback for them. back the taxpayers are on the hook for that Bailout!