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Message
Thinking of selling my rental property. Taxes?
Posted on 4/2/19 at 1:54 pm
Posted on 4/2/19 at 1:54 pm
Having to take care of a house that someone else lives in doesn't seem to be worth it to me anymore. (maybe I'm just mad because I had to fix plumbing issues twice already this year and am having to get an A/C contractor out to the house today because the air handler isn't working)
We purchased the house for $77,000 four years ago and put about $15,000 into repairs and upgrades before renting.
Down payment plus the repairs/upgrades was an initial out of pocket expense of $31,000.
Currently we owe around $47,000
I believe we can get between $120,000 - $130,000 for the house.
How do the Capital Gains work in this situation?
Do we pay capital gains on all money over the original $77,000 purchase price
or
Do we pay capital gains on the amount of money over the 47,000 we currently owe
or
do we pay taxes on the entire sale price (i'm pretty sure this is not the case)?
OR...........
Do we just continue to play the long game with this one property?
Based on income we should be in the 15% capital gains bracket.
(Possibly meeting with our CPA soon to discuss tax implications)
We purchased the house for $77,000 four years ago and put about $15,000 into repairs and upgrades before renting.
Down payment plus the repairs/upgrades was an initial out of pocket expense of $31,000.
Currently we owe around $47,000
I believe we can get between $120,000 - $130,000 for the house.
How do the Capital Gains work in this situation?
Do we pay capital gains on all money over the original $77,000 purchase price
or
Do we pay capital gains on the amount of money over the 47,000 we currently owe
or
do we pay taxes on the entire sale price (i'm pretty sure this is not the case)?
OR...........
Do we just continue to play the long game with this one property?
Based on income we should be in the 15% capital gains bracket.
(Possibly meeting with our CPA soon to discuss tax implications)
5
Posted on 4/2/19 at 2:18 pm to FrankDrebin
1031 that ish into some property baw
Posted on 4/2/19 at 2:24 pm to FrankDrebin
quote:
Do we just continue to play the long game with this one property?
How much do you cash flow from it each month?
Posted on 4/2/19 at 2:27 pm to jimbeam
quote:
1031 that ish into some property baw
Was reading into that but it reads as if the money would have to back into rental property and thats what I'm wanting to get away from.
Yes/No?
Posted on 4/2/19 at 2:34 pm to Brummy
quote:
How much do you cash flow from it each month?
$510.00 each month before property tax and insurance which would probably be around $200-$210 per month so...........
$300.00 profit per month.
Posted on 4/2/19 at 3:00 pm to FrankDrebin
quote:
$510.00 each month before property tax and insurance which would probably be around $200-$210 per month so........... $300.00 profit per month.
How much are you paying each month for the note?
Posted on 4/2/19 at 3:03 pm to Babble
quote:
How much are you paying each month for the note?
$475.00
Posted on 4/2/19 at 3:10 pm to FrankDrebin
It definitely wouldnt be the amount over what you owe. I think it would be the amount over 77,000, but I’m not entirely sure how improvements are treated. (Meaning the improvements could increase your basis of investment and lower your capital gain)
I’m not a CPA, but your CPA will know.
I’m not a CPA, but your CPA will know.
Posted on 4/2/19 at 3:23 pm to FrankDrebin
I'll let others lead the discussion of "should you sell"?
I am assuming you are reporting this rental on your tax return.
Your gain will be as follows:
The amount the sale proceeds equal your basis.
Your basis is:
1) Initial purchase price PLUS
2) Initial costs incurred at purchase (fees, etc) PLUS
3) Cost of major upgrades / repairs (routine maintenance doesn't count) PLUS
4) Cost incurred in selling the house (fees, realtor, staging costs, etc) LESS
5) Depreciation taken - or should have been taken - on the rental
Once you get your gain, that gain is broken into two components -
1) The amount of total depreciation taken - this is taxed at 22 percent
2) The remaining gain is taxed at your long term capital gains rate
3) If you are subject to the net investment income tax, that will apply as well on the total gain.
A 1031 requires you to stay in the real estate game.
I am assuming you are reporting this rental on your tax return.
Your gain will be as follows:
The amount the sale proceeds equal your basis.
Your basis is:
1) Initial purchase price PLUS
2) Initial costs incurred at purchase (fees, etc) PLUS
3) Cost of major upgrades / repairs (routine maintenance doesn't count) PLUS
4) Cost incurred in selling the house (fees, realtor, staging costs, etc) LESS
5) Depreciation taken - or should have been taken - on the rental
Once you get your gain, that gain is broken into two components -
1) The amount of total depreciation taken - this is taxed at 22 percent
2) The remaining gain is taxed at your long term capital gains rate
3) If you are subject to the net investment income tax, that will apply as well on the total gain.
A 1031 requires you to stay in the real estate game.
Posted on 4/2/19 at 3:57 pm to LSUFanHouston
quote:
I am assuming you are reporting this rental on your tax return.
Yes.
quote:
Your basis is:
1) Initial purchase price PLUS
2) Initial costs incurred at purchase (fees, etc) PLUS
3) Cost of major upgrades / repairs (routine maintenance doesn't count) PLUS
4) Cost incurred in selling the house (fees, realtor, staging costs, etc)
So I don't pay any taxes on
$77,000 purchase price
$4,000 est. original closing cost
$15,000 in repairs (assuming that I can prove this)
6% realtor fees, appraisal fees from selling house.
?
quote:
5) Depreciation taken - or should have been taken - on the rental
I'm trying to wrap my head around this right now.
I don't know if my CPA has been taking care of this or if it is even their job to know/tell me about it. Today is my first lesson on the subject.
Posted on 4/2/19 at 4:05 pm to FrankDrebin
quote:
I'm trying to wrap my head around this right now.
I don't know if my CPA has been taking care of this or if it is even their job to know/tell me about it. Today is my first lesson on the subject.
OMFG
you mean to tell me you HAVE NOT been taking DEPRECIATION?? are you even using your maintenance as deductions? insurance? taxes? interest? you do not have PM so forget that.
depreciation recapture
Posted on 4/2/19 at 4:09 pm to Fat Bastard
quote:
are you even using your maintenance as deductions? insurance? taxes? interest?
Yes!
Had no idea it was referred to as taking Depreciation
Edit to say
In reading it seems Taking Depreciation applies more to upgrades weather you have done them are not.
My CPA has never explained this to me and it seems like thats the kind of thing I'm paying them to know/inform me of.
This post was edited on 4/2/19 at 4:26 pm
Posted on 4/2/19 at 4:16 pm to FrankDrebin
How long did you occupy the house as your primary residence?
Posted on 4/2/19 at 4:18 pm to AUjim
quote:
How long did you occupy the house as your primary residence?
Never.
It was purchased as an investment property.
Posted on 4/2/19 at 4:24 pm to FrankDrebin
To clarify something from above, maintenance is not depreciation.
Have you filed your taxes already this year?
-if you haven't, hell, even if you have, you still need to round up everything you can on the house-original purchase paperwork, any receipt you can find, rent checks...literally everything, and you need to find a competent CPA...
The taxes and depreciation recapture can add up in a way that will kick your arse
Have you filed your taxes already this year?
-if you haven't, hell, even if you have, you still need to round up everything you can on the house-original purchase paperwork, any receipt you can find, rent checks...literally everything, and you need to find a competent CPA...
The taxes and depreciation recapture can add up in a way that will kick your arse
This post was edited on 4/2/19 at 4:26 pm
Posted on 4/2/19 at 4:31 pm to AUjim
quote:
To clarify something from above, maintenance is not depreciation.
Have you filed your taxes already this year?
-if you haven't, hell, even if you have, you still need to round up everything you can on the house-original purchase paperwork, any receipt you can find, rent checks...literally everything, and you need to find a competent CPA...
The taxes and depreciation recapture can add up in a way that will kick your arse
Yea,
I think I'm understanding it a little better (see edit to above post).
Will be checking my tax paper work for this depreciation and will be grilling the shite out of my current CPA while also considering a new one.
Posted on 4/2/19 at 5:03 pm to FrankDrebin
no, no, no, sorry if that came across confusing.
depreciation is NOT maintenance it is a separate entity/deduction!
maintenance is separate.
both different entities as far as deductions go on your taxes.
depreciation is NOT maintenance it is a separate entity/deduction!
maintenance is separate.
both different entities as far as deductions go on your taxes.
Posted on 4/2/19 at 5:07 pm to FrankDrebin
quote:
In reading it seems Taking Depreciation applies more to upgrades weather you have done them are not.
My CPA has never explained this to me and it seems like thats the kind of thing I'm paying them to know/inform me of.
Depreciation expense is a deduction you get that represents the initial cost of the property as well as any major renovations. Rather than take a deduction for the full amount of these when you pay them, you're required to spread them out over the useful life of the property, which is determined by the IRS typically as 27.5 years. In many cases, it will be your single largest deduction for a rental property, so you definitely want to make sure you've been taking it. I would be pretty surprised if you're using an actual CPA that failed to take it - it's pretty basic.
Posted on 4/2/19 at 5:36 pm to Brummy
Crisis averted!
Checked tax paper work for the last last four years and the depreciation deduction has been taken.
The CPA never explained though.
Checked tax paper work for the last last four years and the depreciation deduction has been taken.
The CPA never explained though.
Posted on 4/2/19 at 6:02 pm to FrankDrebin
Most people don't care TBH. But going forward it will probably be a topic you remember when he/she goes over your return. 
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