About the author:

Terry I. Weberman, The Kabinet CPA

Terry is a Certified Public Accountant in the New York Metro area with experience working with businesses and individuals across all backgrounds. He writes articles for the Kabinet blog and is here to help you on your home ownership and/or investing journey. Ask Terry a question by sending an email to info@kabinet.com and put “Terry CPA” in the subject line. This is a complimentary service as part of Kabinet’s commitment to you!

US tax forms for the IRS

The purpose of these posts is to give real estate investors general information since our tax code is so dense with minutia and exceptions that it is impossible to give a one size fits all overview.

My goal is to provide you with basic information that will allow you to delve deeper into the subject on your own. You must seek out your personal advisors in the area of taxation – please do not use these posts as your sole guide.

In prior posts, I have taught you about the incredible benefits of depreciation deductions and the owning of real estate. This post will give you an introduction to the taxation of real estate gains upon the sale of your property.

For a refresher on depreciation click HERE. Depreciation recapture is the taxation process where your phantom deduction, the depreciation of either 3.63636% or 2.5641% is taxed as profit at the time you sell your investment property.

While this does create a tax, real estate investors are again given a tax break – the maximum tax rate on this recapture of profit is limited to a 25% tax rate as opposed to the regular maximum tax rate of 37%.

The important point to remember when reviewing all of the complexities I discuss in these posts is that you do not have to handle all of this on your own, that is what a Certified Public Accountant (CPA) is for. What is important is that you understand the factors at play when you make your investments to make accurate calculations for your deals so you are not blindsided with tax consequences when your investments are wildly successful.  

Kabinet is important when receiving the benefits of a depreciation recapture because it enables you to have a permanent record of your original purchase. Having a complete record of property costs, improvements and repairs is vital in making the calculation correctly in order for you to receive the greatest benefit. I cannot stress the important of keeping accurate records enough whether for Depreciation Recapture, Inheritance or any of the other topics we discuss.  

The $49.99 cost of your Kabinet will be paid back by a multiple factor in savings between a 25% tax bracket versus a 37% tax bracket. Assume a gain on sale of $100,000, the simple math reflects a tax savings of $12,000! This is a NO BRAINER if you ask me.

Feel free to contact me for more information at info@kabinet.com, it is gratis.

Note

Terry, The Kabinet CPA, has made every effort to ensure the accuracy of the information within this article was correct at time of publication. He does not assume and hereby disclaims any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from accident, negligence, or any other cause. Speak to your advisor to make sure you qualify for such benefits or opportunities. Do not rely solely on this abbreviated article, it is for informational purposes only.