Year End Tax Tips 2008 Q&A - AMT
Tax Tips Q&A
Read Kevin McCormally's answers to tax questions submitted by NBR's viewers.
Click on a tax topic to explore related questions and answers.
This feature is intended to provide general information and education and should not be considered as investment or tax advice. Each individual should consult his or her own tax, financial, or investment advisor.
Alternative Minimum Tax
QUESTION: Do Capital Gains On Real Estate Push Me Into AMT?
I just sold my rental property (2Family House)and I have a capital gain of $120000.00 I made $25000 for year 2008. What tak bracket will I have to pay? Can I take any more Deciation to slide in a lower tax bracket or am I in the AMT club?
-- Denis, Yardville, NJ
ANSWER:
First, based on the information in your question, I don't see why you'd need to worry about the alternative minimum tax.
As for what tax bracket you're in, $25,000 of taxable income -- that's after all your exemptions and deductions -- lands you in the 15% bracket, regardless of what your filing status is...single or married.
The capital gain on the house you sold will be taxed at capital gain rates (assuming you owned the place for more than a year). Those rates are, GET THIS: 0% -- for the amount of income that falls in the 15% bracket....and 15% for any additional gain (not subject to depreciation recapture...more about that in a second).
If you're single, the 15% bracket -- which earns you 0% tax on the gain -- runs to $32,550; if you're married, the magic number is $65,100. Once your other income, plus the gain, passes that level, your gain will be hit with the 15% rate.
Now, to the extent that your gain is attributable to depreciation claimed while you rented the property (depreciation reduces your tax basis and therefore increases your gain dollar for dollar), that gain is taxed at 25%.
Whew....
-- Kevin McCormally, Editorial Director, Kiplinger Washington Editors
