How do you estimate what your capital gains tax would be on investment property?

Question

This is a difficult situation. We own a piece of undeveloped land in FL and are considering selling to put a down payment on a house in CA. We have owned it for about 14 years. My husband is military and a FL resident. We currently are stationed in CA and I am a CA resident. The land is a joint tenancy. FL doesn't have a capital gains tax, but CA does. So I am guessing that we have to split the gain 50/50 and have 50% taxed by the state of CA. We are trying to use an online capital gains tax calculator to figure how much we will have to pay.

We had an assesment to pave the street. Would that be an improvement cost?

Also, the state bought a small portion to widen a highway. Would the money they paid us be deducted from the basis?

How do you come up with the depreciation? My property value has went up (according to the county assessment).

How do you figure out what the tax rate is on the gain?

I know this is tough one, but I appreciate all the help.

Answer 1

If you file a joint CA return, ALL of the gain is subject to CA tax. If you file a separate return, only your half of the gain is taxed. The entire gain is subject to Federal capital gains tax.

The assessment raises your cost basis and therefore will lower the gain.

What the state bought constitutes a sale of part of the property. That was a taxable event when it occurred. You may or may not have taxable gain that needs to be claimed in the year of the sale. It will reduce your basis for the remaining portion of the property as well.

Land is never depreciated. No tax impact with that.

Since the property was held for over one year, the tax rate is 15% unless your marginal rate is 15% or less in which case it would be 5%. (Had you held it for 1 year or less it would be taxed at your marginal rate.) That's the Federal rate. Not sure what the CA rate is. If I find it, I'll post more later but it's late and I'm heading to bed.

That was easy!

Answer 2

If you had sold under Sec. 1031 (Tax-Deferred Exchange), you would know it so I'm sure you did not. Therefore, you must pay the tax. There is no provision for reinvesting in another property. Have your tax preparer estimate the tax you will owe now so you can put that money aside, after paying any estimated tax that may be required. ES tax is due 9/15 if the property was sold before 9/1 so get right on this. You can expect your taxable gain to be larger than your economic gain since you have depreciation to recapture.

Answer 3

The first thing you should do is call a CPA and discuss this with them before you do anything!
Check this article out on the IRS website. You will be able to find your answers here as well. http://www.irs.gov/businesses/small/article/0,,id=146330,00.html