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What is capital gains rate on the sale of home

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Level 3

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

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Level 15

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


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Level 15

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


ex-AllStar

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Level 3

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

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Level 15

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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Level 10

@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.


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.

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Level 12

@rbynaker wrote:.

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


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?

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Level 15

GOOD point Bill...

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Level 15

@TaxGuyBill wrote:

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.


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.

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Still an AllStar
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Level 15

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?

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Level 3

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

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Level 15

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

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

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Level 3

Different house.

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Level 10

<<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%.

** I'm still a champion... of the world! Even without The Lounge.
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Level 3

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

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Level 3

Got it.  Thanks.

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Level 15

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.

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Still an AllStar
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Level 8

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