If you sold an San Jose income producing property after May 5, 2003, your gain will be taxed at the following capital gains rates. For income property held more than one year, investors in a 25% or greater marginal tax bracket will be taxed at a 15% long term capital gains rate and a 25% unrecapture depreciation tax rate. For the 2006 and 2007 tax years, investors in a 15% or lower marginal tax bracket will be taxed at a 5% long term capital gains rate and a 15% unrecapture depreciation tax rate. In 2008, 2009 and 2010 the capital gains rate will be lowered from 5% to 0%.
However, if you are in a 15% or lower marginal tax rate, the capital gains that you realize from the sale of an income property is added to your income to determine the capital gains rate that will be applied to your gain. That portion of your gain which is in a 15% tax bracket ( after adding the capital gains amount ) will be taxed at the lower capital gains rate and that portion of your capital gains that is in a 25 % tax bracket ( after adding the capital gains amount ) will be taxed at the 15% capital gains rate. Approximately 75% of the tax filing population are in a 15% tax bracket. This tax change will therefore impact many real estate investors when they sell income property.
Unrecapture depreciation taxes is the total of all depreciation taken on the building during the period that you owned your income property plus all accumulated depreciation taken on any improvements to the buildings are subject to the unrecapture depreciation tax rates above.
If you would like to find out more about this contact your tax advisor.
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