Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
capital gains are tricky . taxes range from zero to 20% with a 4% medicare surcharge making the top rate about 24% . on top of which large capital gains can trigger the amt tax on all your other income . it happens to us everytime we sell one of our investment property's .
if you are medicare age it can trigger medicare premiums as high as 3x the regular level . don't forget medicare bases your rate on two years earlier . you may not be on medicare yet and that capital gain can effect your premium .
unbeknownst to us at the time , we had a whopper of a capital gain in 2014 .
we were not retired yet nor on medicare .
well now we retired and my wife went on medicare . we got a 300% increase in 2016 based on the sale in 2014 . i appealed it and won but you may not be so lucky .
i would not attempt to guess at his taxes or ramifications since so much is linked to income .
Say your basis is $100,000 (keeping it low, as you said) and you sell for $1,000,000. That's $900,000 in "profit." As a single person you could exclude $250,000 of that, leaving you with a taxable "profit" of $650,000. Even at the top capital gains rate of 20% (most people would have a LOWER rate), you'd end up with a $130,000 tax bill on a sale of $1,000,000, leaving you with $870,000. (I'm not counting real-estate commissions or anything else -- but even if you WERE, I don't know how you'd go from the $870,000 I came up with to the $650,000 you say you would be left with.)
Someone please correct me if any of my reasoning is wrong -- I am not an expert but this is how I THINK it would work?
I assumed there must be a mortgage, but OP has never said.
Thanks everyone for taking the time to think about this.
Karen, yes the numbers are a little weird. 1M-100K=900K, then 900-250=650. I used 30% for taxes due to capital gains of 20%, medicare taxes as explained by mathjak, 9% state tax approx. And if the sale is via an agent 6-10% sales cost too was not included. But, 650*0.3 is about 200K which is quite a bit to leave on the table just because I am unable to continue with the farm as I age.
Mathjak, thanks for the link. The tax code is a fun read--bleh. I swear I was reading the same words over and over just in different order. "Economic substance doctrine" seems to say you can't do something just to save on taxes but you might be able to if there is economic substance or a business purpose. So I just need to create a business purpose. Hmmm.
Hollytree, that is a great link. It seems to advocate taking part of the sale in the form of installment payments so you can have income spread over multiple years. I guess this means you also apportion payment of the capital gains tax over several years. Maybe that helps fight off the AMT effect that mathjak mentioned.
Do really wealthy people have these issues? I'm sure they have all kinds of ways to minimize these taxes. Why not me? (I am being a little melodramatic here.)
Getting back to my original question though, if I could sell the house to myself so that after another 2 yrs I could take another exclusion (just like people do who change properties) then the 200K loss would go away.
Last edited by luv4horses; 06-10-2016 at 12:03 PM..
the taxes only grow worse . possibly in to the next tax bracket , plus The provision is only for investment and business property, so you can’t swap your primary residence for another home. There are ways you can use a 1031 for swapping vacation homes, but this loophole is much narrower than it used to be.
She said sell one Ag property to buy a smaller farm/ranch.
1031 deferred exchange is commonly used when selling one farm/ranch and buying another....Unless seller believes capital gains rate is going down in future, then you take the capital gains hit pay the taxes & reset your basis.
in this case the personal residence can't be 1031 exchanged . it is their residence . if they are looking at taking the 121 exclusion it is a personal residence . it would be silly to pass up all that free money in order to pay taxes eventually on the whole exchange . plus anything 1031 exchanged has to have all depreciation paid back in advance , which they never took but would have to pay in order to claim it was not a personal residence .
... Karen, yes the numbers are a little weird. 1M-100K=900K, then 900-250=650. I used 30% for taxes due to capital gains of 20%, medicare taxes as explained by mathjak, 9% state tax approx. And if the sale is via an agent 6-10% sales cost too was not included. But, 650*0.3 is about 200K which is quite a bit to leave on the table just because I am unable to continue with the farm as I age.
Ah, I didn't realize that some STATES taxed capital gains as well. NINE PERCENT STATE TAX? No capital gains tax in NH.
But even if you pay $200,000 in taxes -- which admittedly is a LOT of money -- that would still leave you with $800,000 on a $1,000,000 sale ... which seems like a pretty good chunk of change for something that cost $100,000. Maybe THAT is the way you could look at it?
Quote:
Originally Posted by luv4horses
Getting back to my original question though, if I could sell the house to myself so that after another 2 yrs I could take another exclusion (just like people do who change properties) then the 200K loss would go away.
But again ... it doesn't seem that you can legally do that ... so why dwell on it if it's not a possibility?
The only way you can avoid the tax is to find a straw buyer (fraud) who'll buy it each time for $ 250K above your desired cost basis until you cash out eventually. In your example, you are your own straw buyer. It also delays your move out of the property until you've cashed out.
Ah, I didn't realize that some STATES taxed capital gains as well. NINE PERCENT STATE TAX? No capital gains tax in NH.
But even if you pay $200,000 in taxes -- which admittedly is a LOT of money -- that would still leave you with $800,000 on a $1,000,000 sale ... which seems like a pretty good chunk of change for something that cost $100,000. Maybe THAT is the way you could look at it?
But again ... it doesn't seem that you can legally do that ... so why dwell on it if it's not a possibility?
not only do states have income tax but most do not recognize special capital gain rates and tax you fully .
in fact in ny there is no such thing as a zero capital gains bracket , you get taxed on the gain , end of story .
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
instead of 
.
