Ask TaxMama ... Triple Play ... ... March 8, 2002

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Triple Play

ť From: San Leandro, CA

Dear TaxMama:

I have a rental property (triplex) I'm about to sell and I would like to pay my main home off with the $$$ I make. What are the tax implications in this deal?

Will I be subject to capital gains here and by how much approximately?

Triplex sold for $300k ($180k left over after loan is paid off).

Any help on this would be appreciated.

Thanks

Alex

Dear Alex,

You're operating under the common misconception that the money you get out of the sale has anything to do with your gains. Depending on whether you have refinanced the property, your gain may be higher or lower than the cash you receive.

So, you didn't give me enough information to give you a complete answer. Nor does TaxMama do your calculations for you. That's what your good, local, handy-dandy tax pro is for. I'm just here to explain how it works and point you in the right direction to read more.

Your gain from the sale of the triplex will be figured as follows:

Add these:

1) Your total purchase price, including all non-deductible escrow costs (except insurances and impounds).

2) Improvements you've made since you bought it.

3) Points and loan costs of new loans

5) Commissions and selling costs, when you sell the property.

Deduct from the above total:

1) Depreciation you've taken

2) Any casualty losses you've deducted due to earthquakes and floods, etc.

Got a total?

This should give you your taxable gain. Essentially, you will pay 25% to IRS for real estate capital gains and your tax rate for FTB (maximum rate is 9.3%).

Now, if you had suspended passive losses (losses you couldn't deduct because your income was too high), you will get to deduct ALL of those on your Schedule E in the year of the sale.

You'll want to be reading Publication 544

Then, once you've done all your reading, take the whole mess to a good, local tax pro to do your planning and estimating for you.

Good luck!

Best wishes,

Eva Rosenberg
Your TaxMama

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