Income Taxes and Real Estate – First in a Series

CAPITAL GAINS ON SALE OF RESIDENCE: The Federal capital gains rate for long-term (property held for more than 1 year) capital gains for the sale of real estate for most tax payers is 15% ( See Capital Gains Rates for a discussion of Federal capital gains tax rates, particularly the 28% rate for depreciation recapture ). Capital gains in California are taxed at ordinary income tax rates (up to 9.3%). For the sale of a personal residence, if it meets certain requirements (see the links below), up to $500,000 of the gain ($250,000 if filing as a single) may be excluded from the gain on sale calculation for both Federal and California tax purposes. .For a few good links to an explanation of the Federal tax laws explained in plain english relating to the sale of a personal residence, and the exclusions from gain available see the following links:

http://www.fool.com/taxes/2000/taxes000428.htm
http://www.bankrate.com/brm/news/real-estate/20041018a1.asp

For a link to the IRS regulations regarding the sale of a residence, see the following link:
http://www.irs.gov/pub/irs-regs/td_9152.pdf
Note that in this link, there is a discussion regarding exceptions to the general rule that you can only exclude all or some of the gain for a home sold every two years. There are exceptions if the home is sold due to: a change in place of employment, Health, or unforeseen circumstances (as defined ). Note that this results in a “pro-rated exclusion” depending on how many months the property was sold compared to the 2 year allowable period.

For California tax purposes, see the following link: http://www.ftb.ca.gov/individuals/faq/ivr/219.html

**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**