We are getting ready to list our rental property for sale. We haven't lived in it 14 years, so cap gains are coming to our 2024 tax bill.
Several questions. We bought in 2004, lived in it until 2010, at which point we started renting it. For the depreciation recapture, is it 27.5/ the basis (structure, not land) at the time we bought, or the time we started renting it out? (yes, we've been claiming it on our taxes, but I'm not certain we've been doing it correctly, and I know that you repay the entire amount, whether you claimed it or not. And actually, they basis was lower in 2010 than when we bought, thanks to the 08 crash. We had our property taxes reassessed and dramatically lowered shortly before we moved out.)
Next, what improvements, if any, can be used to reduce either that depreciation or the cap gains? I see that realtor fees come off, but what about new floors, a new fridge, redoing the bathroom, painting, or anything else we've done during the 14 years it's been a rental. yes, I've google but I've seen very mixed answers.
Do the cap gains tax rates work like regular tax brackets? I see that if your income is over $517k (MFJ), the cap gains rate is 20%. Our regular income is nowhere near that; does that include the proceeds from the sale, or is that including the sale proceeds? And if it is the latter, is everything below $517k taxed at the 15%, and only everything over $517k (and is that regular income plus the sale proceeds, added together) taxed at 20%?
Finally, we are looking at a HUGE tax bill from all this. Like, $70k if I'm calculating correctly for both the depreciation and the cap gains. Do I need to set up quarterly payments to avoid an underpayment penalty, or does that not apply to this situation?
(No, a 1031 exchange isn't in the cards. And I am aware of tax loss harvesting and may do a little, but I'm wondering if there's anything relating specifically to the house we can use.)