no capital gain tax on sale of rental house if income below $40K?

Forum|Forum|3 years ago
October 3, 2022
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no capital gain tax on sale of rental house if income below $40K? Is this true? Capital gain is around $200K.

https://www.investopedia.com/ask/answers/052015/what-difference-between-income-tax-and-capital-gains-tax.asp#:~:text=The%20most%20important%20thing%20to,and%20for%20the%20preferential%20rate.

What Is the Income Threshold for Capital Gains Tax?
For the 2021 tax year, individual filers won’t pay capital gains tax if their total taxable income is $40,400 or less.
For 2022 returns, that threshold rises to $41,675.

Best answer by Anonymous_

TomD8: so if the person's income is $8800 and the capital gain on the sale of a rental house is $100K, does that mean the tax bracket will be for $108,800 income?? ouch!

@1325956 wrote:

......if the person's income is $8800 and the capital gain on the sale of a rental house is $100K, does that mean the tax bracket will be for $108,800 income??

Yes, in that scenario your AGI would be $108,800 from which you would subtract your standard (itemized) deduction to arrive at your taxable income which, as @TomD8 mentioned, is the figure on which the capital gain tax brackets are based.

[note that there will be a depreciation recapture component in the foregoing calculation]

Anonymous_

Employee

How long have you owned this particular rental house and have you been taking depreciation deductions?

Regardless, of capital gains tax, you most likely have unrecaptured Section 1250 gain (i.e., depreciation recapture) which is taxed at your ordinary income tax rate up to a maximum of 25%.