2007 Tax Rates: Capital Gain

[Lucho]

The maximun tax rate for long-term capital gain for taxpayers subjects to a regular tax rate of 10% to 15% is 5%.

A client called me to say he is selling a house he has being renting for about 10 years and he is expecting a gain of $150.000.00; he wants to know how much tax will be paying on the gain. I was playing with the program using form 4797 part III and I got close to $27,000.00 in taxes (including Fdrl. and CA.) Can someone guide me on where to go or any worksheet I can use to find the right answer for the application of this 5% ( I would'nt tell him at first hand that the tax will be $7,500.00. I also let him know that the answer will be reflected as the transaction taking effect in the year 2007.

This is new for me; any help will be appreciated.

Good night

[OldJack]

In ATX goto 1040 line 44 (tax) and jump to the worksheet. The bottom half is where ATX calculates capital gains tax.

[Joel]

Just remember that the amount of capital gain (150,000) is included in AGI and therefore, unless the client has extensive itemized deductions, his taxable income would be above the upper limit for the 5% capital gains rate (63,700 for MFJ) and some of the gains would be taxed at 15%. In addition, unless all of the 150,000 was 1050 property, there could be some recapture.

[jklcpa]

I think you need to play with the program further & put in some rough data for the rest of client's situation. Be sure to enter a name, SSN & choose a filing status. Otherwise ATX won't know which tax brackets to use. I'd actually open a sch e & the asset entry with the cost & accum deprec. Then use the disposition tab on the asset entry screen. Have 4797, Sch D, 6251 in the return too.

I think that you may have some of the gain subject to 25% rate due to the depreciation aspect. Also, with that much gain your client isn't in the lower brackets & looks like part of the rate is 15% not 5%.

I did a quicky & the info was showing up on the "Tax Worksheet" tab on the Sch D, not the line 44 wksht of 1040. Again, maybe because of the depreciation.

You really didn't provide anything about the other income & deductions on the return. Be sure to test whether AMT is a factor. You don't want a nasty surprise after telling the client the tax impact.

(ETA - I agree with Joel, I was still pondering & typing. Didn't see his posting )

[Lucho]

Thank you to all of you for helping me. Now I undestand how to figure out

Have a good day.