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Selling first home. Question: Should I in this scenario?
Posted on 12/3/17 at 9:31 pm
Posted on 12/3/17 at 9:31 pm
Alright: I have a rental house. Bought in 2012. Turned into a rental August 1, 2015. Thought about selling it this year. I’ve read that a rental house that used to be a primary residence completely changes it’s capital gains taxes on selling after it’s been more than three years removed from being primary residence. It hits three years August 1, 2018. Current tenant has a lease through June 30, 2018.
Is it right to sell in the month in between or are the capital gains tax not really that big of a deal? I was thinking of rolling the money into a 1031 and buy another rental here in Oxford where I live where it’s close to manage.
I spoke to another buddy today and he said your first home purchase is the only one that is qualified for an exemption of capital gains. However, since this is now a rental, could I use my current primary residence in that regard?
The mortgage and insurance is about $590/month and my current tenant pays $787. I could charge more, but he's been there for two+ years and has done a good job maintaining it. Would rather take a little less and keep a good guy in there who pays on time and avoids vacancy.
So many questions - so much confusion. Please let me know what specifics need to be added to warrant a better question.
Is it right to sell in the month in between or are the capital gains tax not really that big of a deal? I was thinking of rolling the money into a 1031 and buy another rental here in Oxford where I live where it’s close to manage.
I spoke to another buddy today and he said your first home purchase is the only one that is qualified for an exemption of capital gains. However, since this is now a rental, could I use my current primary residence in that regard?
The mortgage and insurance is about $590/month and my current tenant pays $787. I could charge more, but he's been there for two+ years and has done a good job maintaining it. Would rather take a little less and keep a good guy in there who pays on time and avoids vacancy.
So many questions - so much confusion. Please let me know what specifics need to be added to warrant a better question.
This post was edited on 12/3/17 at 9:33 pm
2
Posted on 12/3/17 at 10:59 pm to rpg37
Look up section 121 personal residence exclusion. To qualify, you must live there for 2 of the last 5 years.
You can use the 121 exclusion multiple times a long as you meet the criteria.
Capital gains tax top rate this year is 20% plus Obama care tax and state cap gains tax. If you've depreciated the property, you must pay recaptured depreciation rates on that portion.
Talk to an accountant, CPA, or tax attorney to determine your tax liability.
You'll need a qualified intermediary if you choose to do an exchange.
You can use the 121 exclusion multiple times a long as you meet the criteria.
Capital gains tax top rate this year is 20% plus Obama care tax and state cap gains tax. If you've depreciated the property, you must pay recaptured depreciation rates on that portion.
Talk to an accountant, CPA, or tax attorney to determine your tax liability.
You'll need a qualified intermediary if you choose to do an exchange.
Posted on 12/4/17 at 6:40 am to rpg37
As far as I know it being your first home doesn't matter.
How much appreciation has the home had? Yes you can do a 1031 exchange but all that does is delay your taxes owed, you still have created taxes by not selling it.
I would likely sell your home if you have other real estate plans in the future. Cash flow is good, but I'm guessing you paid more than 80,000 for the house? The general rule of thumb is 1% of the purchase price for rent as a basis for a rental. If you are getting under that, cash flow may be okay but only until you have a major issue. Plus your % return likely isn't that great.
Overall though for someone fairly new to real estate, if you are happy with it those numbers are not terrible so keep it. It's a good diversified investment and a good way to learn about real estate.
How much appreciation has the home had? Yes you can do a 1031 exchange but all that does is delay your taxes owed, you still have created taxes by not selling it.
I would likely sell your home if you have other real estate plans in the future. Cash flow is good, but I'm guessing you paid more than 80,000 for the house? The general rule of thumb is 1% of the purchase price for rent as a basis for a rental. If you are getting under that, cash flow may be okay but only until you have a major issue. Plus your % return likely isn't that great.
Overall though for someone fairly new to real estate, if you are happy with it those numbers are not terrible so keep it. It's a good diversified investment and a good way to learn about real estate.
Posted on 12/5/17 at 7:52 pm to baldona
quote:
How much appreciation has the home had?
Not so much. I bought for $37k and could probably sell for $70k. I did add a sunroom to it which I could subtract from capital gains...
quote:
'm guessing you paid more than 80,000 for the house?
See above. Bought for $37k and renting for $787. Over 2% on that one. If it wasn't in a damn flood zone I would be at 3%!
Overall, I bounce around selling and keeping. I guess my panic is knowing that I really have to make the decision to do it this year. If I keep it, I keep it longterm. If I sell it, I can move on.
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