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Selling home - taxes - primary vs. rental
Posted on 7/8/19 at 12:20 am
Posted on 7/8/19 at 12:20 am
Straight forward:
1) How is selling your 1st primary residence different from selling your second, third, etc.?
2) How are taxes different from a rental property and a primary residence?
3) If my first home was converted to a rental, do I still qualify for the tax benefit as if it was still my primary? If I lose that benefit, does it roll into my next primary?
Situation: I bought my first home in 2013. $37,000. Lived in it for two years and then moved. When I moved, I rented it out and have been ever since. It is currently on a seven-year note after I pulled a HELOC and I owe $28,000 with five years left on it before I own full.
After moving, I bought a second home...lived there for three years (2015-18) and then converted that into a rental when I bought my current condo. I still live in my condo, but I bought a rental property in April 2019.
My first home has had the same tenant for four years and he has extended through July 2020. The house is valued at about $100,000. I am thinking of selling it, but wonder if I lose all benefit for tax purposes. Is the live in two of five still the only applicable thing? It rents for $800/month (break even cash flow for now) and I will own it outright in five years. At that point, the cash flow goes up $550/month.
1) How is selling your 1st primary residence different from selling your second, third, etc.?
2) How are taxes different from a rental property and a primary residence?
3) If my first home was converted to a rental, do I still qualify for the tax benefit as if it was still my primary? If I lose that benefit, does it roll into my next primary?
Situation: I bought my first home in 2013. $37,000. Lived in it for two years and then moved. When I moved, I rented it out and have been ever since. It is currently on a seven-year note after I pulled a HELOC and I owe $28,000 with five years left on it before I own full.
After moving, I bought a second home...lived there for three years (2015-18) and then converted that into a rental when I bought my current condo. I still live in my condo, but I bought a rental property in April 2019.
My first home has had the same tenant for four years and he has extended through July 2020. The house is valued at about $100,000. I am thinking of selling it, but wonder if I lose all benefit for tax purposes. Is the live in two of five still the only applicable thing? It rents for $800/month (break even cash flow for now) and I will own it outright in five years. At that point, the cash flow goes up $550/month.
This post was edited on 7/8/19 at 12:27 am
3
Posted on 7/8/19 at 1:32 am to rpg37
I think you had to have lived there 2 of the last 5 years.
Posted on 7/8/19 at 6:25 am to hottub
sale profit on the rental, minus depreciation, will be taxed as long term capital gains.
Profit from your primary residence is tax free up to I think 500k? not sure on the numbers. And yes, you have to live in it 2 out of the last 5 years to qualify as a primary residence.
Sounds like your first home would be Long term capital gains - you lived in it 1 year out of the last five.
2nd house would still qualify as primary as long as the 2/5 rule was met and the condo would be the same.
Profit from your primary residence is tax free up to I think 500k? not sure on the numbers. And yes, you have to live in it 2 out of the last 5 years to qualify as a primary residence.
Sounds like your first home would be Long term capital gains - you lived in it 1 year out of the last five.
2nd house would still qualify as primary as long as the 2/5 rule was met and the condo would be the same.
This post was edited on 7/8/19 at 6:30 am
Posted on 7/8/19 at 7:06 am to rpg37
Posted on 7/8/19 at 8:55 am to hottub
quote:
lived there 2 of the last 5 years.
And there is no flexibility. So you need to look into selling your 2nd home soon.
Posted on 7/8/19 at 6:07 pm to baldona
Is primary home sale always exclusive of the capital gains tax? I thought there was something special about the first home...
Posted on 7/9/19 at 2:07 pm to rpg37
quote:
Is primary home sale always exclusive of the capital gains tax? I thought there was something special about the first home...
If you meet the two out of five rule, and didn't rent it before you moved in, then the gain is excludable up to 250K single / 500K MFJ.
Posted on 7/9/19 at 2:12 pm to rpg37
Your first situation, you will no longer qualify for the exclusion. You will have gain tax based on selling price - adjusted cost (original cost less depreciation taken) - selling expenses.
Your gain will be in two parts. To the extent your gain represents depreciation you took, you will have depreciation recapture. That is taxed at 22 percent for straight line depreciation, and at your marginal rates for any items subject to accelerated depreciation. The balance of the gain is taxed as a long term cap gain. You may also owe net investment income tax if your income is high enough.
Your second home situation, as long as you sell it before 2 years (edit: 3 years) after you moved out, you will be able to exclude the gain.
Keep in mind that you can only claim the exclusion once every two years.
Your gain will be in two parts. To the extent your gain represents depreciation you took, you will have depreciation recapture. That is taxed at 22 percent for straight line depreciation, and at your marginal rates for any items subject to accelerated depreciation. The balance of the gain is taxed as a long term cap gain. You may also owe net investment income tax if your income is high enough.
Your second home situation, as long as you sell it before 2 years (edit: 3 years) after you moved out, you will be able to exclude the gain.
Keep in mind that you can only claim the exclusion once every two years.
This post was edited on 7/9/19 at 9:06 pm
Posted on 7/9/19 at 5:35 pm to LSUFanHouston
quote:
Your second home situation, as long as you sell it before 2 years after you moved out, you will be able to exclude the gain.
Did you mean 3 years?
Posted on 7/9/19 at 8:51 pm to LSUFanHouston
So, the avoidance of any capital gains can occur for any and all houses I own as long as I live in them two of five years? So, conceivably, I could move back in to one later on/
Posted on 7/9/19 at 9:06 pm to baldona
quote:
Did you mean 3 years?
Yes. First day back from vacation and apparently I can't count to 5.
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