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I am finding it extremely difficult to get an answer to this question. I can understand if its not possible to give me an exact number but I am just trying to figure out, roughly how much I will be paying in capital gains tax on a property I am selling in Phoenix AZ. My situation is this:

I bought a home in October of 2010 for about 107,000. I lived in the home for one year, and in October of 2011 I quit my job and moved to Colorado with a friend. I rented the house out in November of 2011 until the end of December of 2012. For the year 2012, I did not have a job and made no money. From January 7th to 31st I worked and made about $1000 before leaving the company.

The home I am selling was bought as a two bedroom, but this last week I added a third bedroom, costing me about $3000. So I currently owe about 102,000 on the home and will be selling it for 150,000. How can I figure out what I will be paying in capital gains tax? Would someone know how much based on the information I have provided. Any help would be greatly appreciated.

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  • Because you rented the house Starting in November 2011, can we assume that you claimed rental income and depreciation with the tax forms you filed in April 2012? – mhoran_psprep Feb 2 '13 at 0:48
  • ... and if so, you would also need to look at depreciation recapture – Tony the Pony Feb 6 '13 at 14:14
  • Suppose you do not file depreciation, losses, etc. and are just barely breaking even on your rental. Your income is almost nil. I understand the process on figuring what your final gain would be but what is the cap gain tax rate in Florida? – user22096 Oct 24 '14 at 3:13
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Your capital gain is about $40K, which (assuming your total income is under $250K) is taxed at 15% long term capital gains rate. Additional depreciation recapture of approximately $5K is taxed at 25%. So this gives us rough estimate of $7250 tax. This is Federal tax, AZ rates are somewhere between 2% and 4%, so you'll be looking at some $1.6K additional tax to AZ.

If you have accumulated rental losses or other expenses, it will lower the total amount of your gain (and, accordingly, the taxes).

This is all very rough estimates, and you shouldn't rely on this but verify on your own or with a professional. I suggest using professional services because while being costly, they will probably save you more in taxes than you'll have to pay them because of the knowledge of what exactly of your expenses can be deducted and how to calculate the cost basis correctly.

(edit from JoeT - the home exclusion requires occupancy for 2 of prior 5 years. For the OP, the prorated $125k exclusion 'might' cover the gain, it depends when the increase in value occurred, if the gain was during the time rented, it's taxable, I believe.)

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  • @JoeTaxpayer the exclusion doesn't apply since he didn't live in the house for 2 years, and doesn't sell it for any of the reasons covered in the qualifications to reduced exclusion. See pub 523: irs.gov/publications/p523/… – littleadv Feb 2 '13 at 0:52
  • The "unforeseen" includes 'The circumstances causing your sale were not reasonably foreseeable when you began using the property as your main home.' I imagine the OP didn't think he'd up and quit his job when he bought the house. – JTP - Apologise to Monica♦ Feb 2 '13 at 1:41
  • @Joe, yes that would probably hold had he sold it after moving out. But after a year as a rental - I highly doubt it. – littleadv Feb 2 '13 at 1:44
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    And that's why I agree "using professional services" is sage advice here. – JTP - Apologise to Monica♦ Feb 2 '13 at 1:48
  • Also note: the land does not "depreciate", so you need land cost and house cost separately. – Bryce Jul 28 '17 at 1:38

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