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Capital gains questions
Posted on 4/11/24 at 7:01 pm
Posted on 4/11/24 at 7:01 pm
Bought a rental property in Alabaster ALA (suburb of birmingham about 30 min south)
Paid 109k 7 years ago. ZILLOW says it’s now worth 255k, the area seems to be blowing up, tons of new development
If I sell for 250k will I get killed in tax?
The house was built in 79 so it’s old and costs $ for upkeep
Also the tax is 2400$ a year and 1700$ a year for insurance
The rent is always on time (1200) so I’m not in a huge rush to sell but it’s very tempting to sell and pay off my house and have zero bills
Thanks for any input
Paid 109k 7 years ago. ZILLOW says it’s now worth 255k, the area seems to be blowing up, tons of new development
If I sell for 250k will I get killed in tax?
The house was built in 79 so it’s old and costs $ for upkeep
Also the tax is 2400$ a year and 1700$ a year for insurance
The rent is always on time (1200) so I’m not in a huge rush to sell but it’s very tempting to sell and pay off my house and have zero bills
Thanks for any input
This post was edited on 4/11/24 at 7:36 pm
8
Posted on 4/11/24 at 7:03 pm to kjntgr
Don’t sell ever.
Posted on 4/11/24 at 7:59 pm to kjntgr
(no message)
This post was edited on 4/17/24 at 6:46 pm
Posted on 4/11/24 at 8:06 pm to kjntgr
Have you been depreciating it over the years? Have you made capital improvements?
Posted on 4/11/24 at 8:27 pm to Dawgfanman
Yes I have made improvements
New fence
New fancy cap top gutters
Ect
New fence
New fancy cap top gutters
Ect
Posted on 4/11/24 at 10:05 pm to kjntgr
I am not an expert in these things but you could do a 1031 exchange into another investment property and not pay capital gains just a thought.
Posted on 4/11/24 at 11:33 pm to kjntgr
quote:
pay off my house and have zero bills
Life costs money
Posted on 4/12/24 at 12:35 am to STCTiger985
quote:
Since you've owned the property for several years and you can prove that it is an investment property that will help get you a more favorable capital gains tax rate. Being that you intend to use the funds to pay off a mortgage that may also have less of a tax burden on the gains?
What the hell are you talking about?
Posted on 4/12/24 at 12:37 am to kjntgr
New capital improvements add to your original basis.
Any depreciation you’ve taken as an expense lowers your original basis. When calculating your gain, a portion would be ordinary due to recapturing that depreciation.
Any depreciation you’ve taken as an expense lowers your original basis. When calculating your gain, a portion would be ordinary due to recapturing that depreciation.
Posted on 4/12/24 at 7:27 am to kjntgr
Since it’s a rental you will pay the 15 or 20% on the diff between your basis and what you sell it for.
Only way to offset capital gains is if you have capital losses.
Only way to offset capital gains is if you have capital losses.
Posted on 4/12/24 at 8:57 am to soupboy10
quote:
am not an expert in these things but you could do a 1031 exchange into another investment property and not pay capital gains just a thought.
When I was in a similar position I did a 1031 exchange. I rolled the one property into two properties. Over the years I’ve sold revenue producing rentals just because their value increased to a point where I had to sell it to realize the gain.
Posted on 4/12/24 at 9:22 am to kjntgr
Initial basis is 109k purchase price plus any closing costs associated with the sale. Any improvements will be added to basis. Any additional furnishings will added to basis. Any depreciation taken will decrease basis. Taxes and insurance are deducted in the year they occur to offset rental income and do not factor into basis.
Add up all your basis in the house. Subtract your basis from the sales price. That is what you will pay long term capital gains on.
You should also consider doing a 1031 exchange to avoid paying the cap gains. Hope this helps
Add up all your basis in the house. Subtract your basis from the sales price. That is what you will pay long term capital gains on.
You should also consider doing a 1031 exchange to avoid paying the cap gains. Hope this helps
Posted on 4/12/24 at 12:38 pm to kjntgr
You will pay 15 or 20% cap gains and possibly a Medicare tax depending on your income.. Whether you depreciated affects your cost basis and tax liability. Any long term cap gain tax is favorable compared to short term, which is taxed same as your paycheck.
I am admittedly better at making money than evading taxes and others on here can give better tax advice than I. But I wonder if you are asking the wrong question. My focus would be what could you do with the money if sold? I have sold 10+ rentals over the years and never once paid down my primary home. I always use that money to make more money, in either the market or a different real estate property. A 15% one time tax could earn you x% per year, albeit on a smaller initial amount. Let's say you gain $120k from the sale, and pay $18k in tax (and another $2-3k in non-tax related fees).. Then invest the $100k and earn 10% per year for numerous years. You come out ahead quickly. You have to allow for possibility of some down years but it is not hard to have more good years than bad. Of course, you need to consider the scenario of keeping the property in your comparisons. That could be the best option. I am typically a buy and hold guy. I think every property I sold was completely paid off when I sold it. Holding them for long periods made it easy for each to be very profitable.
I am admittedly better at making money than evading taxes and others on here can give better tax advice than I. But I wonder if you are asking the wrong question. My focus would be what could you do with the money if sold? I have sold 10+ rentals over the years and never once paid down my primary home. I always use that money to make more money, in either the market or a different real estate property. A 15% one time tax could earn you x% per year, albeit on a smaller initial amount. Let's say you gain $120k from the sale, and pay $18k in tax (and another $2-3k in non-tax related fees).. Then invest the $100k and earn 10% per year for numerous years. You come out ahead quickly. You have to allow for possibility of some down years but it is not hard to have more good years than bad. Of course, you need to consider the scenario of keeping the property in your comparisons. That could be the best option. I am typically a buy and hold guy. I think every property I sold was completely paid off when I sold it. Holding them for long periods made it easy for each to be very profitable.
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