What Is Capital Gains Tax on Real Estate?
Capital Gains Tax is levied against the increase in value on a property from the time it was purchased it, up until the date of sale.Cost BasisCost basis is the amount of the original purchase price when you first purchased the asset you are selling plus any improvements and costs of acquisition.DepreciationDepreciation on commercial properties is calculated on a straight line basis over 39 years. Residential income properties are depreciated over 27.5 years.Depreciation RecaptureDepreciation recapture refers to the tax paid on the portion of the property that you have depreciated during the lifetime of your investment.Capital Gains Tax RateUntil Dec. 31, 2010 the federal capital gains tax rate is 15%, after that the Bush era tax cuts will expire and the capital gains tax rate will increase to 20 percent. The tax on your depreciation recapture will be 25 percent.ExampleA property that was purchased 10 years ago for $100,000 with an additional $50,000 in repairs has a cost basis of $150
