We are in our mid sixties and our gross income is approximately 70,000 a year. We are planning to sell a small acreage we have had for 25 years. The buyers are willing to either get a loan and pay immediately, or pay on a monthly contract, whichever we want. Which method would result in the least amount of taxation? The property cost about 25,000 and will sell for around 125,000. Any suggestions about what we need to consider would be appreciated. Thank you.
Wed Jun 26, 2013 5:25 pm
oldguy Senior Member
Cash: $ 718.00
Joined: 21 May 2006
quote: Which method would result in the least amount of taxation?
You'd have to know the future to predict it. By 2013 law, you would pay a max of $15,000 tax on your profit for a cash sale. If you spread it out over a few years you would probably hit the 15% bracket most years (due to the $70,000 income) so you would pay the same $15,000 but not all at once. But if the capital gains tax laws change and you kick some of it into 2014 & beyond, I would bet heavily on higher rates in the future, 20% and beyond.
Persoanlly, I'd take the cash, pay my $15,000 in one chunk, and be done with it. I don't think you can hope to win by dragging it out.
Wed Jun 26, 2013 5:48 pm
coaster Senior Advisor
Cash: $ 1626.30
Joined: 11 Oct 2005
I think the above is good advice. Capital gains have enjoyed favorable tax rates for many years. With the government looking for more sources of revenue without actually appearing to raise ordinary income tax rates on the "middle class" (i.e. taxes on "wages") they're going to look elsewhere, and other types of income that have enjoyed lower rates are likely to be taxed at the same rates as ordinary income in the future. That's just an opinion; you cannot predict future tax rates, but if you're making your decision primarily on the amount of taxes you're going to pay, that's probably the way you should look at it.