I purchased a condo in 2014 and lived there until mid-2018 when I converted it to a rental property. I decided to sell the property in March 2022 when the tenant left. My net profit is roughly is roughly $120K (Home sold for $310K after closing, and my cost basis was ~$190K) and I took about $24K in depreciation over the years. Am I responsible to first pay a depreciation recapture tax of 25% on the $24K ($6K)?
yes, depreciation recapture comes first. the 25% tax rate is a max. the tax you pay could be less.
And the LTCG tax of 15% on ($310K - $190K - $24K) = $166K ($24,900) ? Any other things I need to consider? Anything I missed or miscalculated? the LTCG would be $120K because the other $24 is the 1250 portion
you do not qualify for the home sale exclusion because you only lived there about 1.25 years out of the 5 years before the sale. 2 years is required unless you sell for reasons of health, job change or unforeseen circumstances. the tax rate on the LTCG portion may be more or less than 15% it all depends on your tax situation for 2022.
Do I need to make a payment to the IRS? If so, how? Title company told me to just file my income taxes next year to figure out how much I'll owe, but I think there will be penalties if I owe such a large amount??
there may be ways to avoid penalties without paying in all your 2022 taxes
option 1: timely estimated tax payments and federal withholding taxes are 100% of 2021 taxes. (110% if your 2021 adjusted gross income was over $150,000
option 2; timely estimated tax payments and federal withholding taxes are 90% of 2022 taxes.
if you have state income taxes the rules could be different.
so you get a better idea of where you stand, I would suggest contacting a tax pro to do a tax projection for 2022, you see if estimates are needed the first (25%) was due 4/18/2022. their fees probably aren't deductible.
