Selling House - Need Help with Capital Gain Tax Advice (funds, HSA)

[icecream1717]

Hi All,

I need some real estate tax finance help with the sell of my investment house. I'm looking to reduce the amount of taxes I need to pay for the capital gains I will have when I sell my house. I tried googling some ways but there's just too many options and wanted to see if anyone here knows the best route for my current circumstances.

So I bought an investment property in Aug 2013 for $115,000 in Dallas, did not live in it for 2 years (rented out for a year), and now I am about to close on the house for $183,000. The closing date is coming up on 10/30/2015. The house has been inspected and appraised/surveyed. Everything is pretty much done.

So taking account for depreciation on the house for the last two years, I'm supposebly going to make over $70,000 in capital gains minus whatever expenses/closing costs I have.

So $70,000 in capital gains would mean I'm going to get taxed a bunch, especially since I worked this year and make $70,000 with my income alone. So add the two together, I guess I made $140,000 for the year? And from reading on google, I'm going to pay at least 28% capital gains tax on the $70,000 I make from the sale of my home.

So the question is, is there any way I can reduce the capital gains tax for the year 2015? I do not want to buy another house within 60 or 90 days. I am not comfortable with the market right now, and all home prices are way too expensive for me. Any help from you guys is greatly appreciated.

[TurtleCreek80]

Yes, there are several ways to shrink your tax bill in this situation:

1. Sell stock you are going to take a loss on. It will offset the real estate gain. Given the market's decline this year, if you own stock this might apply to you.

2. Increase your tax deductions. Since you're not going to reinvest the gains into another rental property, you could use the extra money to max out a Roth or traditional IRA, give more to charities, fund/increase funding of a HSA (if you have one), max out your 401k, etc,

[TurtleCreek80]

PS- that's a crazy gain in 2 years! What part of Dallas was the property in, and was it single family or condo? Did you make any improvements to the property while you owned? (We are landlords, too).

[MckinneyOwnr]

Originally Posted by icecream1717

Hi All,

I need some real estate tax finance help with the sell of my investment house. I'm looking to reduce the amount of taxes I need to pay for the capital gains I will have when I sell my house. I tried googling some ways but there's just too many options and wanted to see if anyone here knows the best route for my current circumstances.

So I bought an investment property in Aug 2013 for $115,000 in Dallas, did not live in it for 2 years (rented out for a year), and now I am about to close on the house for $183,000. The closing date is coming up on 10/30/2015. The house has been inspected and appraised/surveyed. Everything is pretty much done.

So taking account for depreciation on the house for the last two years, I'm supposebly going to make over $70,000 in capital gains minus whatever expenses/closing costs I have.

So $70,000 in capital gains would mean I'm going to get taxed a bunch, especially since I worked this year and make $70,000 with my income alone. So add the two together, I guess I made $140,000 for the year? And from reading on google, I'm going to pay at least 28% capital gains tax on the $70,000 I make from the sale of my home.

So the question is, is there any way I can reduce the capital gains tax for the year 2015? I do not want to buy another house within 60 or 90 days. I am not comfortable with the market right now, and all home prices are way too expensive for me. Any help from you guys is greatly appreciated.

Whoa whoa whoa, back the truck up here!

I don't know where you are getting your info but it is NOT correct. The purpose of capital gains tax is so you DO NOT pay taxes at your regular tax bracket rate.

You've held onto the home for over one year. That means you pay the long term capital gains tax, which is 15%.

There. I've just reduced your estimated taxes by $9,100.

[icecream1717]

Thank you for pointing that out Mckinney! I thought if you took the $70k lump sum no matter how long you owned it, you pay short term capital gain. If its taxed at 15%, then that helps a bunch.

TurtleCreek, Thanks for the ideas. To make this clear, you just take the money you made from the house and buy some stocks/mutual funds thru an IRA?

I bought the house in zip code 75219. Its a single family home. Yes, we did a lot of cosmetic renovations inside the house and replaced a lot of old appliances and fixed some minor plumbing issues and re did some of the flooring.

[MckinneyOwnr]

Originally Posted by icecream1717

I bought the house in zip code 75219. Its a single family home. Yes, we did a lot of cosmetic renovations inside the house and replaced a lot of old appliances and fixed some minor plumbing issues and re did some of the flooring.

You can also deduct the amount you spent on renovating out of the $70k. So if you paid $20k in renovations, you're only looking at $50k subject to 15% tax. And that's not factoring in depreciation either.

[JTC Mom]

You can also defuct sales commission and closing costs.

[ChristieP]

And don't forget that new Affordable Care Act 3.5% tax on real estate transactions.

[serger]

Originally Posted by ChristieP

And don't forget that new Affordable Care Act 3.5% tax on real estate transactions.

Well, first it is 3.8% and second it doesn't apply to the OP.

[MTQ3000]

Originally Posted by serger

Well, first it is 3.8% and second it doesn't apply to the OP.

Yup, not even close on the income or profit test.

Mick