capital gains

Hi Nora Jane Rogers, thank you for attending the event and post questions.

Selling a rental property and use the proceeds to pay off your current main home mortgage are two separate matters (business property vs. personal main home).

While a rental property, the depreciation expense claimed annually decreased the cost basis. When you sell a rental property, the gain has two components:

1.  Depreciation expense taken over the years is recaptured, taxed at your ordinary income tax rate, up to a max of 25%;

2. the remaining gain is taxed at long term capital gain tax rates (0%, 15%, 20%) all depending on your taxable income.

In 2022, the 0% rate applies for individual taxpayers with taxable income up to $41,675 on single returns ($40,400 for 2021), $55,800 for head-of-household filers ($54,100 for 2021) and $83,350 for joint returns ($80,800 for 2021).

The 20% rate for 2022 starts at $459,751 for singles ($445,851 for 2021), $488,501 for heads of household ($473,751 for 2021) and $517,201 for couples filing jointly ($501,601 for 2021).

The 15% rate is for filers with taxable incomes between the 0% and 20% break points.

The calculation is by "Qualified Dividends and Capital Gain Tax Worksheet - line 16" on page 35 of below link.

https://www.irs.gov/pub/irs-dft/i1040gi--dft.pdf

My most educated guess for you would be approx. 15% long term capital gain tax rate.

Regarding using the proceeds to pay off home mortgage - you would have no mortgage interest expense to claim on Schedule A Itemized Deductions. Most taxpayers are using generous Standard Deductions nowadays. So you save on paying mortgage interest.

Hope the above helps. Thank you.