selling a rental house -- some basic tax questions (I THINK they're basic) (pay, taxes)

[karen_in_nh_2012]

Hi all. First, yes, I've googled, and yes, I will hire someone to do my 2020 taxes because they will be WAY more complicated than usual -- but that won't be until early 2021. So I have some questions for you on taxes after selling a rental property.

(1) I know there will be tax (at my usual rate I think) on the depreciation recapture. I've already planned for that.

(2) I replaced the roof literally 1-2 months after I made the house a rental. (Yes, $15,000 paid that very summer on a house I would never live in again! Roofing costs are INSANE where I live.) I know that $15,000 was a capital improvement so it's been part of the depreciation over 27.5 years. My question is, let's call the depreciation on the roof $550/year for the 8 years it's been a rental. That still leaves an expense of $11,600 for the roof (i.e., $15,000 minus [$550 x 8]). Can I subtract that $11,600 as an expense to lower my "net proceeds" on which I'll have to pay tax? (And if so, I assume my other capital improvements would be treated the same way?)

(3) I know that capital gains rates for tax year 2019 were 0%, 15%, and 20% depending on filing status and income (for me, it would b e 15%). Google hits are telling me that the percentages remain the same for tax year 2020 (although the dollar amounts in each bracket went up slightly -- doesn't make a difference in my case). I'd actually been planning on 25%, but all the hits (bankrate, fool, etc.) are telling me I'm wrong. I hope I am ...

I THINK that's all for now. I am just trying to make sure I have a decent understanding of how much I need to put aside for taxes and depreciation recapture after the rental house closes. Oh, actually, 1 more question ...

(4) Do I need to make a tax payment THIS YEAR on the capital gains? Or do I just need to pay it by April 2021?

Thanks in advance!

[1ondoner]

Underpayment penalty depends on how much you owe in taxes. IRS website sets the limit as $1,000 but I've gotten away with more although I had been making estimated taxes. Usually I wait till December and pay my estimated taxes rather than making quarterly payments

Originally Posted by karen_in_nh_2012

(4) Do I need to make a tax payment THIS YEAR on the capital gains? Or do I just need to pay it by April 2021?

Thanks in advance!

[SuiteLiving]

Originally Posted by karen_in_nh_2012

Hi all. First, yes, I've googled, and yes, I will hire someone to do my 2020 taxes because they will be WAY more complicated than usual -- but that won't be until early 2021. So I have some questions for you on taxes after selling a rental property.

(1) I know there will be tax (at my usual rate I think) on the depreciation recapture. I've already planned for that.

(2) I replaced the roof literally 1-2 months after I made the house a rental. (Yes, $15,000 paid that very summer on a house I would never live in again! Roofing costs are INSANE where I live.) I know that $15,000 was a capital improvement so it's been part of the depreciation over 27.5 years. My question is, let's call the depreciation on the roof $550/year for the 8 years it's been a rental. That still leaves an expense of $11,600 for the roof (i.e., $15,000 minus [$550 x 8]). Can I subtract that $11,600 as an expense to lower my "net proceeds" on which I'll have to pay tax? (And if so, I assume my other capital improvements would be treated the same way?)

(3) I know that capital gains rates for tax year 2019 were 0%, 15%, and 20% depending on filing status and income (for me, it would b e 15%). Google hits are telling me that the percentages remain the same for tax year 2020 (although the dollar amounts in each bracket went up slightly -- doesn't make a difference in my case). I'd actually been planning on 25%, but all the hits (bankrate, fool, etc.) are telling me I'm wrong. I hope I am ...

I THINK that's all for now. I am just trying to make sure I have a decent understanding of how much I need to put aside for taxes and depreciation recapture after the rental house closes. Oh, actually, 1 more question ...

(4) Do I need to make a tax payment THIS YEAR on the capital gains? Or do I just need to pay it by April 2021?

Thanks in advance!

The remaining undepreciated cost of the roof is included in your tax basis when calculating the gain on the sale of the property.

[karen_in_nh_2012]

Originally Posted by SuiteLiving

The remaining undepreciated cost of the roof is included in your tax basis when calculating the gain on the sale of the property.

Thank you!! That is what I THOUGHT would happen (didn't know where else the "leftover depreciation" would go). I made a LOT of improvements to that house so I will need to do a lot of calculations to even get an idea, but this is good news.

================

ETA: OK, one more question. I lived in the house for 9 years before making it into a rental. It cost $135,000 and I put $15,000+ of improvements into it before I even moved in (plus more during the 9 years I lived there). How do THEY get accounted for after all this time? Note, if you can just point me to IRS docs that I can read, that's fine! I just can't find what I'm looking for when googling. Thanks!