Happy almost Halloween everyone. This year I face my most spooky tax season yet: self employment income + long term capital gains and the first-time ever prospect of having to pay the AMT. I could use your guidance to find the way through the woods.
The situation: sold a rental condo and realized a long-term capital gain of ~$90,000. Looking at about $20,000 of self-employment income on top of that too, but I can bill for that in 2018 if that would be wiser. (status: married filing jointly, no dependents, state is CO)
The question:
1. will I have to pay the AMT? Some calculators I've used say yes while others say no...
2. If you were in my shoes, would you defer that $20k income to 2018? Looking into the crystal ball, we're expecting to earn another $50,000 between the two of us next year too (self-employment income) so that'd bring the total to $70,000 before solo 401K contributions (if they survive another year that is). No long-term cap gains next year.
If your
only income items are
- $90K long term capital gain this year
- $50K SE income next year
- $20K SE income either this year or next,
and federal income tax is your
only concern then taking the $20K this year will be better.
$90K LTCG + $20K SE has ~$1783 federal tax; $50K SE has ~$2918 federal tax
$90K LTCG alone has $0 federal tax; $70K SE has ~$5706 federal tax
Better to pay ~$4700 than ~$5700.
Do you need to declare any depreciation recapture on the rental unit? E.g., if you had to add $20K depreciation recapture then it might be better to move the $20K to next year, because
$90K LTCG + $20K SE + $20K depreciation recapture has ~$6562 federal tax; $50K SE has ~$2918 federal tax
$90K LTCG + $20K depreciation recapture has ~$1995 federal tax; $70K SE has ~$5706 federal tax
In that case, $9480 is more than $7701.
You are nowhere near paying AMT in any of those cases.
Numbers above are from the
case study spreadsheet (CSS).
As it says there, although that tool has been used to good advantage for a wide variety of case studies, it is not a commercial product and does not cover all possible tax and life situations. I highly recommend using real commercial software (i.e., not that spreadsheet) when it comes to making real changes to your taxes (e.g., TaxAct (TA), TurboTax (TT), etc.).
If you do use TT, TA, etc., I'd be interested in how those answers compare with the CSS answers. The CSS also has state tax calculations (including CO), but those have not been tested nearly as much as the federal ones.
