At that point you would have the value of the building plus all the improvements that contributed to your base. Then you would have operated the building over the years and would have had to claim a tax benefit on the depreciation of the building on your income tax return.
You need to figure out how much depreciation you’ve made on your tax return over the years. The IRS requires you to pay back 25% of the depreciation. Here’s an example of how this works: If you had written off $100,000 over those 11 years, you would now owe the IRS $25,000.
Next you need to calculate the profit from the sale of the building. Let’s say the base for the building is $300,000 and you sold the building for $500,000. In this example, you would have long-term capital gains of $200,000. The current tax rate for long-term capital gains is between 0% and 20%.
According to IRS.gov, if filing for 2021 (by April 18, 2022), married couples filing together don’t pay capital gains tax if their total taxable income is $80,800 or less. The rate increases to 15% on capital gains if their income is $80,801 to $501,600. If your income is above that, you pay 20% of the profits, or in our example $40,000, in long-term capital gains tax.
Assuming you fall in the 20% category, between the two taxes, you would end up paying about $65,000 plus an additional 3.8% tax on the sale of investment property.
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