Capital gains tax rate

**RogerC** · 04-15-2008, 06:44 AM

I'm a bit confused about how capital gains are taxed. I sold a parcel of vacant land in 2007 and I'm now calculating the gains, which total about $12,000.

I was under the impression the gains are taxed at a lower rate than my regular income tax. However, when I completed the Form 1040 Schedule D it told me to enter the total gains (basically the 1099-S Gross Proceeds minus my costs of selling the land) on my Form 1040. The 1040 adds the gains into the regular income and it all gets taxed at my tax rate (32%).

Am I doing this correctly?

**RehabEd** · 04-22-2008, 01:28 PM

The following might only apply to a primary residence, but here's my 2 cents:

Firstly, from what I understand, you don't have to pay capital gains if you've owned the property for at least 2 years. If you only owned the property for a year, then your capital gains tax liability is cut in half. Owned 6 months? -25% and so on.

It will be far less than the 32% you estimated. It is a flat percentage tax of net gain. Say you purchased the property for 100K two years ago. You sold it last year for 112K.

112K - 100K = 12K

12K - 5k (buying & selling costs: agent fees? advertising? atty. fees? bank fees? maintenance: lawn maintenance? clearing? town or local fees? association fees? taxes: property taxes paid for the year, school taxes? etc.) = 7K net gain.

7K - 50% (because you held the property for a year) = 3.5K
Capital gains tax is lower now than when Wild Bill was the boss. I think it's 15% now. So, 3.5K x 15% = $525.

It should be taxed separately from your regular income.

I might be wrong, but please don't murder the new guy for trying.

**TomAnto** · 04-22-2008, 07:59 PM

Your are calculating your taxes incorrectly.

The tax exemption is not available for property held as a passive investment. Long Term Capital Gains rate is 15% for property held for more than a year. Generally, deductions available are for property used in an active trade or business. Vacant land is a passive investment.

Please seek help from a tax attorney.

**RehabEd** · 04-23-2008, 03:24 AM

Good point TomAnto -

I would even recommend letting a CPA do your taxes for you. I stopped doing my own taxes as soon as I was out of the 1040EZ category.

**bmc** · 04-25-2008, 07:24 PM

If you held the land for less than a year, your gain is short-term capital gain and will be taxed just like your regular income. However, if you held the land for more than a year, your gain is long-term capital gain and will be taxed at a reduced rate.

**RehabEd** · 04-26-2008, 12:35 PM

TomAnto and bmc have effectively corrected some of my errors above.

TomAnto - What did you mean by "the tax exemption is not available for property held as a passive investment"?

Did you mean that since vacant land is considered a passive investment, the deductions that could otherwise be taken for property used in an active trade or business, could not be taken for the vacant land?
Is that to say that the costs of buying, selling and maintaining the land are not deductible expenses???

Simply - Does RogerC owe tax on the full $12K gain? What if it cost $12K to make that $12K?
(Alas, sounds like me, I'm always putting in 30 to make 30.)

**vikas2607** · 04-30-2008, 12:02 AM

Currently, capital gains may be taxed at 5 percent, 15 percent, 25 percent or 28 percent, or a combination of rates. These tax levels are known as long-term capital gains and apply to assets that you hold for at least 366 days (more than one year).