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Well, pro rated is better than nothing.
Basically, outside of shared tenancy, there is no good way to lower tax load.
Well, at least, I have, as the result of sale, 2 paid for rentals (sold one, paid 2) that bring cash flow in. But I am surely not looking towards tax time. Like as if all fees and excise taxes and realtor were not enough.
Yes, thank you, I do know how to calculate property base for sale.
And, depreciation is not recaptured completely. Only 25% of it. Still....
I am in this situation. I determined it’s best to just pay the taxes, get rid of the rentals and take advantage of the seller’s market. I have sold a few via owner financing which spreads out the tax burden and allows me to continue to make money off the house with fairly low risk.
Not sure, if this belongs to real Estate or to Economics...
Here's question.
When selling a rental - capital gain is taxed. Also, depreciation is recouped.
This results in very large tax bill.
Yes, I am very well aware that you can 1031 into another investment but, that is not an option.
That said, what can be legally done, to reduce this tax burden? Owner has to be resident in that property for 2 years, to qualify for tax break.
even if you made it a primary , after being a rental first or 2nd home any tax exclusions get prorated ..so if it was a rental 3 years and primary two years you only get 40% of the entire exclusion of 250k if single and 500k if married. if it was a rental 8 years and primary two years all you get is 20% of the exclusion .
OP, I (like a few others in this thread) am in the same situation. I sold my rental house on 7/2/20; I had lived in that house from 2003 to 2012, then it was a rental for 8 years. When my tenants of 4 years told me they were buying their own house, I decided to sell, and I got lucky because it was a sellers' market here. It sold for literally $20,000 to $30,000 more than I expected it to.
I have detailed records from 2003 on on all the improvements made, but I will still have to pay SOME capital gains tax (my bracket is 15%) AND the depreciation recapture too. I set aside $20,000 from the rental house proceeds for these things, although I estimate that they'll be more like $15,000. Yes, it's a lot of money, but my tenants paid my mortgage for 8 years AND I made a lot more on the sale than I expected, so I am OK with it.
And not to hijack the thread, but one related question: do I have to pay my estimate of the capital gains/depreciation recapture by 12/31/20 OR is it simply due by 4/15/21?
...That said, what can be legally done, to reduce this tax burden? Owner has to be resident in that property for 2 years, to qualify for tax break.
AFAIK, that's the best way to avoid the capital gains tax (other than working a 1031 Exchange, which you say is inapplicable here).
Quote:
Originally Posted by adjusterjack
That's what I did. After my divorce I kicked my tenants out and moved in for two years. Then sold it. No taxes.
Yes. Well, if your capital gains are less than $250,000 for a single person or $500,000 if you're married. In other words, you may not avoid all taxes, but you get the exemption.
Quote:
Originally Posted by oregonwoodsmoke
Owner occupied sale of a previous rental only saves you a prorated percentage of the capital gains. You still owe capital gains for the years it was a rental....
I checked and rechecked that issue. The language seems to be clear that if you occupy the property for two out of the last five years, you get the full $250,000 or $500,000 exemption. (I'd be very interested to hear if I'm wrong about that.) You just want to be able to show proof of occupancy, like mailing address, utility bills....
That said, what can be legally done, to reduce this tax burden?
Well, you could sell it for less.
Quote:
Originally Posted by Boone1791
I checked and rechecked that issue. The language seems to be clear that if you occupy the property for two out of the last five years, you get the full $250,000 or $500,000 exemption. (I'd be very interested to hear if I'm wrong about that.) You just want to be able to show proof of occupancy, like mailing address, utility bills....
Check some more. The rules are different since it''s been a rental.
can you roll it into a "vacation rental"? Buy a place for yourself, a cabin in Colorado, a beach shanty in the Florida Keys, Jersey Shore condo, Lakeside cottage, etc.. then rent it out on airbnb a few times a year and keep it for yourself long term. Utilize the 1031 exchange and no more landlord headaches.
Using a 1031 exchange, you can only use the rental 10% of the days that it is rented. So if it you only rent it 50 days per year, you can use it for personal use 5 days per year. At least that's the "law". How anyone would know how many days you actually use it, I have no idea.
Yes, this ^^^ ... so geez, make less money, pay less in taxes. That's a solution, right? (And OF COURSE I'm being facetious, as was the poster I quoted. But I think he and I agree on the, well, silliness of this thread ... sorry to speak for you, Jack. )
Seriously, the OP likely has made a TON of money when selling ... but everyone is trying to tell him all these ways that MAYBE he could save some money on taxes. (I mean, he wrote that he may have "a very large tax bill." Well, only if you make a VERY LARGE PROFIT.)
Just PAY THE TAXES, and enjoy the lots of extra $$$ that you have LEFT. (That's what I'm doing after selling my rental.) I can't imagine that the tax bill would be more than 25% of what you MADE ... so just pay it.
Taxes are a fact of life. They pay for a lot of things we take for granted, like roads and highways and police and fire fighters and public hospitals to care for the neediest among us. And yes, of course I wish they were less, but oh well, I can't have everything. I STILL made money on the sale of my rental, so I will pay my taxes on said rental. That's it.
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