A friend of mine no less asked me a tax question today. He is selling a some undeveloped land he purchased 30 years ago at a $24,000 profit. He asked me what his capital gains tax would be. I pretended I was an attorney and said "I'll get back to you on that."
What is it and upon what does it depend?
Dick
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The capital gains tax is based on the amount of profit made and the length of time that he held the capital asset. Profit (or gain) is equal to adjusted selling price minus adjusted purchase price. Generally, cost is what he paid for the land 30 years ago, possibly increased by any capital improvements made since then (fences, service roads, utility services, etc). Long term capital gain (more than one year holding) rates are maxed at 15% of the gain.
Somewhere between zero and $3,600, depending on what else is on his return. It's 5% on the amount that takes him to the top of the 15% bracket and 15% above that.
-- Phil Marti Clarksburg, MD
Dick,
You came to the right place! No attorneys here :)
15% quick answer unless in a bracket below 25%, in which case it would be 5%. Now to gum things up a little there are the usual questions about loss carryforwards, installment sales and such. There are also issues of AMT and phase-out of deductions and exemptions, which could make the answer 22%. So if taxpayer is real rich or real poor you can use the short answer, but for most in the middle you really have to figure the tax with and without. Bill Brunell
Is this a part of the 2006 tax law quiz?
Well, my answer is that the tax would be calculated as a long-term capital gain, and the exact amount due would be determined by entering the information on sale proceeds and date thereof on the appropriate line of Schedule D, with the cost basis and date of original purchase in the proper columns. The resulting _gain_ (in this instance) of $24,000 would be included in the total capital income items for that taxpayer, and taxes due would be calculated on the back of the paper form, or by the software program on a computer. That tax could be 5% (if total income is quite low), or 15% for those with higher incomes. For a few unfortunates, there might also be some confounded AMT (Alternative Minimum Tax) considerations, which would be added to the effective tax rate. So you were right to say you would get back to them. And now you can give them the normal tax preparer's answer: "Well, it depends ..." Bill ;-)
The capital gains tax rate depends on all other income.
Holiday ChEAr$, Harlan Lunsford, EA n LA
I knew a lot of people would offer responses to this question, just not so many Bills. Bill Brown
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