(upbeat music)
- [Toby Mathis] If you buy a property
let's say $100000
and you sell that property after five years
and it sells for $150000,
will I be taxed on the $50000 of gain,
or will I get my $100000 dollars back
without paying taxes?
Do you want to play with this one?
- [Jeff Webb] Yeah, I mean lets look at the easiest scenario
that you bought $100000 worth of land.
You're speculating on the price going up.
- [Toby Mathis] Mmhmm
- [Jeff Webb] Five years later you're able to sell it
for $150000, you're going to be taxed a
capital gains rate since it was an investment on
the $50000.
- [Toby Mathis] Mmhmm
- [Jeff Webb] So we're talking the long-term capital gains
rates, which is either going to be 0, 15 or 20 percent.
- [Toby Mathis] Yeah
- [Jeff Webb] Now let's say that you're investment
is a rental property, anything you might be
taking depreciation from.
- [Toby Mathis] That's the big one so you have it
five years and you may be depreciating this copy.
- [Jeff Web] Then you're going to have the $50000
in capital gains but you're also going to have
some depreciation recapture.
That is you're going to have to recognize as income
what you previously depreciated.
- [Toby Mathis] Yeah so in english, 'cus this gets
really murky, if you buy a rental property and
you have a house on it,
the IRS says, hey that house is going to last
27 and a half years.
They're omnipotent, they know how long it's going to
last.
So they let you take 127.5 against whatever
income you're generating.
- [Jeff Webb] Mmhmm
- [Toby Mathis] And right it off.
That's called depreciation whether you make
a dollar or not, you're getting that depreciation.
So it's whether you're, how you're able to take it.
In addition you have all that gain.
So Jeff's absolutely spot on.
The return on your capital, what they call the faces
you're going to get back tax free.
Any depreciation, you're going to pay whatever bracket
you're at half to 25%, so it could be a 10, 12
it could be something lower but it's going to be
capped at 25% and then you're going to pay
long-term capital gains on the rest, the 50
and that's going to be at either zero or 15 or 20%
plus your state taxes.
- [Jeff Webb] Right
- [Toby Mathis] Plus if you make too much money
then that investment income tax is another 3.8
if you make over a quarter mil I think.
Is that right?
- [Jeff Webb] Yeah yeah that is right
- [Toby Mathis] We throw this stuff out there.
We just sit here and banter back and forth.
He's looking at me like what the hell
are you talking about?
- [Jeff Webb] Well I thought you were going to say
the account sometimes gets murky.
- [Toby Mathis] Yeah no (muffled response)
Somebody asked on that previous question,
by the way, what if you have an LLC an not a
C-corp?
An LLC does not exist to the IRS.
So the easiest way to think of an LLC
is it's a wrapper.
The IRS says I don't care what the wrapper
is, what is inside and you tell it,
it's a partnership, it's a corporation,
it's an S-Corp, it's a C-Corp.
So an LLC just means that the IRS needs to be
told what it is.
- [Jeff Webb] Yeah and one thing on the C Corporations
while they do recognize capital gains and losses
there are no special rates for capital gains and
losses.
- [Toby Mathis] Yup
Somebody else asked about that same previous question
Do they know where they should be an LLC or Inc?
You're asking the same thing.
I would make it a C-Corp just to be safe because
now we're not worried any full through.
And yeah if you have an LLC it's disregarded
and you own it, then it's a sole proprietorship.
We'll keep jumping on these ones.
Oh and somebody just said hey on this question
this last question they had, there was a
10:31 exchange.
So you wouldn't pay any taxes with a
10:31 exchange as long as you meet the 10:31
exchange rules you roll forward the bases,
which is you're not going to pay any tax
on the depreciation or on the capital gains.
You just roll that forward into the next property.
That's kind of an interesting mix.
You don't have to worry about it.
Just make sure you do your 10:31 exchange.
Alright.