10 Feb What do I owe in taxes when I sell this inherited condo?

Q. I inherited a condominium from my mother. It was appraised to be worth $220.000 on the estate return. I had been renting it out and I paid taxes on that income annually. At this point, I would like to sell it and see that Zillow thinks the value is $300,000. Assuming it sells for $300,000, what would the capital gains taxes be?
— Seller, maybe

A. We’re sorry to hear about the loss of your mother.

The first step is to calculate the gain from selling the rental property.

The selling price will be reduced by all closing costs you incur, such as realtor commissions and attorney fees, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.

“The starting point in calculating your cost is the $220,000 value in your mother’s estate, as you get a `step-up’ in basis to that amount,” he said. “Next you will need to subtract depreciation that would have been claimed for residential real estate using the prescribed life of 27.5 years.”

Any capital improvements made since you became the property owner, less depreciation, would also be added to the cost, he said.

The excess of your sales price, net of closing costs, over the cost basis will be the gain realized, he said.

As you have held the rental property for more than a year, the gain will likely qualify for long-term capital gain treatment for federal purposes, Becourtney said, noting it will need to be combined with any other capital gains and losses.

“Assuming you end up with a net long-term capital gain, the federal tax rate will depend on your overall income, and could range from 0% to 23.8%,” he said. “The depreciation claimed may be subject to a maximum capital gains rate of 25%.”

For New Jersey, capital gains are taxed no differently than any other income, Becourtney said. Depending on your overall income you will incur New Jersey tax ranging from 1.4% to 10.75%, he said.

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This story was originally published on Feb. 10, 2022.

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