Christine is a small business owner who sells handmade furniture. In 2024, her business has had a successful year, and she is considering selling a piece of property she owns. The property was originally purchased for $150,000 five years ago, and its current market value is $250,000. Christine expects to make a $100,000 profit on the sale.
Since the property was held for more than a year, the profit is considered a long-term capital gain, which is typically taxed at a lower rate than ordinary income. Christine’s federal long-term capital gains tax rate could range from 0% to 20%, depending on her overall taxable income for the year.
However, Christine also has some concerns about the depreciation she claimed on the property in previous years. Depreciation can result in depreciation recapture, which is taxed as ordinary income, potentially at a higher rate.
By consulting her tax advisor, Christine can determine the best course of action to minimize her tax burden with strategies like offsetting the gain with other losses or planning for any depreciation recapture, ensuring she doesn’t pay more than necessary in taxes.
Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.