Capital Gains and Losses – Taxes On Investment Property Sale (2019)


(upbeat music) – [Toby Mathis] If you buy a property let’s say $100000 and you sell that
property after five years and it sells for $150000, will I be taxed on the $50000 of gain, or will I get my $100000 dollars back without paying taxes? Do you want to play with this one? – [Jeff Webb] Yeah, I mean lets
look at the easiest scenario that you bought $100000 worth of land. You’re speculating on the price going up. – [Toby Mathis] Mmhmm – [Jeff Webb] Five years
later you’re able to sell it for $150000, you’re going to be taxed a capital gains rate since
it was an investment on the $50000. – [Toby Mathis] Mmhmm – [Jeff Webb] So we’re talking
the long-term capital gains rates, which is either going
to be 0, 15 or 20 percent. – [Toby Mathis] Yeah – [Jeff Webb] Now let’s
say that you’re investment is a rental property,
anything you might be taking depreciation from. – [Toby Mathis] That’s
the big one so you have it five years and you may be
depreciating this copy. – [Jeff Web] Then you’re
going to have the $50000 in capital gains but
you’re also going to have some depreciation recapture. That is you’re going to
have to recognize as income what you previously depreciated. – [Toby Mathis] Yeah so
in english, ‘cus this gets really murky, if you buy
a rental property and you have a house on it, the IRS says, hey that
house is going to last 27 and a half years. They’re omnipotent, they
know how long it’s going to last. So they let you take
127.5 against whatever income you’re generating. – [Jeff Webb] Mmhmm – [Toby Mathis] And right it off. That’s called depreciation
whether you make a dollar or not, you’re
getting that depreciation. So it’s whether you’re,
how you’re able to take it. In addition you have all that gain. So Jeff’s absolutely spot on. The return on your capital,
what they call the faces you’re going to get back tax free. Any depreciation, you’re
going to pay whatever bracket you’re at half to 25%,
so it could be a 10, 12 it could be something
lower but it’s going to be capped at 25% and then you’re going to pay long-term capital gains
on the rest, the 50 and that’s going to be at
either zero or 15 or 20% plus your state taxes. – [Jeff Webb] Right – [Toby Mathis] Plus if
you make too much money then that investment
income tax is another 3.8 if you make over a quarter mil I think. Is that right? – [Jeff Webb] Yeah yeah that is right – [Toby Mathis] We throw
this stuff out there. We just sit here and
banter back and forth. He’s looking at me like what the hell are you talking about? – [Jeff Webb] Well I thought
you were going to say the account sometimes gets murky. – [Toby Mathis] Yeah no (muffled response) Somebody asked on that previous question, by the way, what if you
have an LLC an not a C-corp? An LLC does not exist to the IRS. So the easiest way to think of an LLC is it’s a wrapper. The IRS says I don’t care what the wrapper is, what is inside and you tell it, it’s a partnership, it’s a corporation, it’s an S-Corp, it’s a C-Corp. So an LLC just means
that the IRS needs to be told what it is. – [Jeff Webb] Yeah and one
thing on the C Corporations while they do recognize
capital gains and losses there are no special rates
for capital gains and losses. – [Toby Mathis] Yup Somebody else asked about
that same previous question Do they know where they
should be an LLC or Inc? You’re asking the same thing. I would make it a C-Corp
just to be safe because now we’re not worried any full through. And yeah if you have
an LLC it’s disregarded and you own it, then it’s
a sole proprietorship. We’ll keep jumping on these ones. Oh and somebody just
said hey on this question this last question they had, there was a 10:31 exchange. So you wouldn’t pay any taxes with a 10:31 exchange as long
as you meet the 10:31 exchange rules you roll forward the bases, which is you’re not going to pay any tax on the depreciation or
on the capital gains. You just roll that forward
into the next property. That’s kind of an interesting mix. You don’t have to worry about it. Just make sure you do your 10:31 exchange. Alright.

Paul Whisler

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