Legal Question in Real Estate Law in New Jersey

Re: Capital gains

In order to determine how much tax is due on sale of the property, more information is needed. For example, you do not indicate what the cost basis of the property is; how long you have owned the property; depreciation issues; whether or not capital improvements have been made during your ownership period; etc.

Additionally, a straight sale of the property might not be the most tax-efficient method of disposing of it. For example, you may save on taxes by considering a "1031 exchange" for like-kind property.

Due to the value of the property and the potential tax liabilities, you would be well-advised to consult with an accountant, in addition to having an attorney on board to advise you. I would be happy to discuss this with you further, please e-mail or phone me.

I strongly recommend that you consult with an attorney immediately so that you can explore your legal rights, obligations, and options. If you wish to discuss retaining my services, contact me at:

[email protected]

(973)-605-8995

[Disclaimer: The above comments are not intended as nor should they be relied upon as "legal advice", which can only be obtained by personal consultation with a retained attorney; at which time the specific facts and circumstances of your case can be thoroughly evaluated. This reply is provided for general informational and educational purposes only, and does not create an attorney-client relationship with the responding attorney.]

Re: Capital gains

Alan seems to have covered all issues, but I will try to clarify some points. Gain is based, in your situation, on several items: holding period, original cost, improvements, depreciation method used, selling price and how sold. In a traditional sale, you add the original cost plus improvements, deduct depreciation (land cannot be depreciated so its allocated cost remains constant) to get to a current "cost". Add to this your closing costs (although some may be eligible for direct write-off) and compare this number to the selling price. The differential is your gain. If held for some time, more than 1 year but less than 5, your gain will be taxable at 15%. If held more than 5 years, you may be eligible for a different rate, but 15% is the maximum. However, depending upon what form of depreciation you used (stright line vs. accellerated), some of the gain may be taxed as ordinary income, rather than long-term capital gain. Ordinanry income is taxable at your personal income tax bracket, not the preferred rate for long-term gains. You do not say why you are selling. If just to liquidate the property, your gain will be due the year of sale. However, if no one needs the proceeds, you might just want to "exchange" the property for a different type of rental property, in which case there may be an opportunity to defer paying taxes (another whole set of calculations is involved) until the replacement property is sold. That is the 1031 deal Alan mentioned. Finally, you indicate that one sibling lives in the property as his residence. His tax consequence will differ, as that portion of the total sale attributable to the sale of his personal residence offers him an exclusion from gain, assuming he has lived there for 2 of the preceeding 5 years. Bottom line, many nuances between you, as owners, how the property has been handled tax-wise while you owned it, and how it is sold (straight sale or tax-free exchange). I also recommend seeing a CPA, have him/her review all of the data and figures and you should be able to get a reasonably approximate tax cost.