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Capital Gains Tax Question
Posted on 7/3/23 at 11:08 am
Posted on 7/3/23 at 11:08 am
My family owns a lake property owned by my mom and her sister. It was an inheritance 15-20 years ago. It is a rental property with 4 small houses on it. It has not been their primary residence in over 5 years.
They plan on putting the property on the market soon. Question is, what can they do to avoid capital gains taxes if anything? This is in Texas. Sale price will be somewhere between 1M and 1.2M (who knows if they'll get that).
Mom does not make any income. They did not prepare for retirement so this is their sole retirement (not great for them).
They plan on putting the property on the market soon. Question is, what can they do to avoid capital gains taxes if anything? This is in Texas. Sale price will be somewhere between 1M and 1.2M (who knows if they'll get that).
Mom does not make any income. They did not prepare for retirement so this is their sole retirement (not great for them).
6
Posted on 7/3/23 at 11:33 am to WhiskeyThrottle
quote:
They plan on putting the property on the market soon. Question is, what can they do to avoid capital gains taxes if anything? This is in Texas. Sale price will be somewhere between 1M and 1.2M (who knows if they'll get that)
Roll it into another rental property? Think they are paying taxes. I don't know for sure but I stayed at a holiday inn last night
Posted on 7/3/23 at 11:48 am to HailToTheChiz
They are done with rental properties. They aren't the types that should be in this business to begin with.
Posted on 7/3/23 at 12:23 pm to WhiskeyThrottle
What was it worth when they inherited it? That’ll be their basis for cap gains.
Posted on 7/3/23 at 12:32 pm to Dawgfanman
^this if the property was appraised/valued at $500k for example when they inherited it they will owe CG on the difference.
Posted on 7/3/23 at 1:09 pm to Dawgfanman
quote:
What was it worth when they inherited it? That’ll be their basis for cap gains.
If I had to guess, maybe worth $200k when it was inherited. They bulldozed a house and built 3 additional houses. We've renovated one of the houses twice.
My grandfather bought it back in the mid 80s for something ridiculous like $20k. That amount bought you a lot more back in the day, but pretty crazy to see how much the property value has shot up in that time.
Posted on 7/3/23 at 1:28 pm to WhiskeyThrottle
Depreciation is recaptured and taxed when a rental property is sold
This post was edited on 7/3/23 at 1:29 pm
Posted on 7/3/23 at 2:04 pm to WhiskeyThrottle
1031 exchange.
The best thing to do would be to not sell it, pass it along to the next generation, then sell it with the newly stepped-up basis. Doesn't sound like that is an option though if they need $$$ for retirement.
The best thing to do would be to not sell it, pass it along to the next generation, then sell it with the newly stepped-up basis. Doesn't sound like that is an option though if they need $$$ for retirement.
Posted on 7/3/23 at 2:14 pm to GeauxGriff
quote:
The best thing to do would be to not sell it, pass it along to the next generation, then sell it with the newly stepped-up basis. Doesn't sound like that is an option though if they need $$$ for retirement.
As the next generation, I don't know if I want the mess of dealing with this property. My mom owns 50% of the property and her sister owns 50%. My cousin is the sole inheritor of my aunt's 50% and I have two sisters, so we'd each get 1/6th. I'd rather my parents use the money for retirement than deal with the headache, although, I'd come out a good bit ahead dealing with the property. Just don't really want the problems that comes with it.
Posted on 7/3/23 at 2:27 pm to WhiskeyThrottle
All perfectly valid reasons for selling now! I was speaking strictly from a tax perspective. Hard to put a price on peace of mind.
Posted on 7/3/23 at 2:59 pm to GeauxGriff
Not sure it's the same situation as a rental house, but you can move back in the house for two years and establish it as your primary residence. Once that is done, $ 250k exemption if you're single, $ 500k if you're married. If that's not possible, be sure to reduce sales price by expenses paid out over the years and any improvements made. Have repair invoices and good documentation in case of an audit. Deduct closing costs of selling the property as well.
Posted on 7/3/23 at 4:23 pm to WhiskeyThrottle
No tax expert but these costs may reduce gains:
quote:
They bulldozed a house and built 3 additional houses. We've renovated one of the houses twice.
Posted on 7/3/23 at 5:57 pm to WhiskeyThrottle
quote:
My grandfather bought it back in the mid 80s for something ridiculous like $20k. That amount bought you a lot more back in the day, but pretty crazy to see how much the property value has shot up in that time.
The wife and i were watching the Price is right channel from 1983 and there was a beautiful Pontiac trans am and next episode ford mustang both were around 7k. Cars were dam cheap back then as well but at least with land the value never seems to go down like a used car/truck. Blows me away with what you could have did making 50k a year back in the 80's.
Posted on 7/3/23 at 6:28 pm to WhiskeyThrottle
1031
Posted on 7/4/23 at 9:00 am to WhiskeyThrottle
Sounds like taxes will be owed if they sell. On this kind of gain, you might consult a tax advisor, but outside of 1031, time to pay the piper. Good news is they will have a lot of after-tax money.
Posted on 7/4/23 at 9:49 pm to WhiskeyThrottle
I’ll buy it on seller finance and pay them a set amount for X amount of years if it’s able to be rented out as a vacation house or long term tenant.
Everything would go through a lawyer of course. Very interested. Let me know!
Everything would go through a lawyer of course. Very interested. Let me know!
Posted on 7/5/23 at 2:38 pm to WhiskeyThrottle
This sounds like a real nightmare.
Have they been accurately tracking expenses over the years? Have they been claiming depreciation?
The 'move back in for 2 years' strategy is probably a pretty good idea.
Either way, they definitely need to go talk to a good CPA who has experience with real estate transactions.
Have they been accurately tracking expenses over the years? Have they been claiming depreciation?
The 'move back in for 2 years' strategy is probably a pretty good idea.
Either way, they definitely need to go talk to a good CPA who has experience with real estate transactions.
Posted on 7/6/23 at 8:39 am to AUjim
quote:
This sounds like a real nightmare.
Have they been accurately tracking expenses over the years? Have they been claiming depreciation?
The 'move back in for 2 years' strategy is probably a pretty good idea.
Either way, they definitely need to go talk to a good CPA who has experience with real estate transactions.
To be honest, the whole property has been nothing but work for the last 3 years. All work and no enjoyment. I rebuilt the dock welding in the water in July and August heat. I rebuilt the balcony on the house since the wood had deteriorated. The interior was stripped down to the studs and remodeled.
They have a good accountant that handles this property and my dad's business. I'm not here soliciting professional advice so much as I am just curious how the process works. They'll get with the CPA for sure. I don't know the answer to your tracking expenses and depreciation question, but when I say they aren't good business owners, that's an understatement. It's been a problem for years on both of their businesses. So I'm going to guess no.
I have another question for those of you that have dealt with this. 2 of the houses are currently under lease, the third one, the tenants have given their notice to vacate and the 4th (main) house, we just finished renovating. Previous tenants did a number on the house. Is there any obligation to let current or prospective tenants know that the property will be going for sale? Or once the house is on the market, is there any obligation to tell a prospective tenant the house is on the market?
Posted on 7/6/23 at 8:43 am to BayouBengal23
quote:
I’ll buy it on seller finance and pay them a set amount for X amount of years if it’s able to be rented out as a vacation house or long term tenant.
Everything would go through a lawyer of course. Very interested. Let me know!
My aunt apparently needs the money pretty bad right now or I would guess they would consider a seller finance option. But seller financing isn't an option for them. If it were my decision, I'd go down the road and see what it looked like with you.
Posted on 7/6/23 at 1:55 pm to Hmanhunt
Not if they roll it to another property. Sounds like they won’t.
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