Calculating capital gains taxes on the sale of rental property

Calculating capital gains taxes on the sale of rental property.

Attorney Tom Olsen: Adam you're on News 96.5, go ahead.

Adam: Hello sir?

Attorney Tom Olsen: Hey.

Adam: I only have one house and I rent it out. It's probably about like let's see here, about six years been doing good but I want to get rid of the property because I'm moving towards the Space Coast and I don't want to go back forth and take care of it anymore. People are telling me there's a capital gains tax?

Attorney Tom Olsen: There is.

Adam: Can you explain that to me a little bit more. I understand that when I sell the house I got pay another tax on top of selling the house?

Attorney Tom Olsen: No. There's only one tax and it's a capital gains tax. Adam, let's say this, let's say you paid $200,000 for that home and let's say that you're going to sell it for $250,000. Right off the top of the bat we start with a capital gains tax on your $50,000 profit, but wait that's not the final answer. If while you were in there you had to do improvements to that property and to the tune of 10,000 bucks like a new air conditioner for example, well now your gain is only $40,000. Wait, that's not the final answer.

If on your tax returns for the last six years you have been collecting rent and depreciating that property on your income tax returns meaning you've got a tax benefit because you're depreciating it, you might have depreciated that property down $180,000 and now you're going to pay capital gains on your $70,000 profit. Adam, the bottom line is if you're going to make money on this you're going to owe a capital gains tax and it is up to you and your accountant to figure out what that tax amount is.