Sell and Buy Rental Properties

7 Replies

Hello BP,

I am planning on selling my primary residence in the near future which has plenty of equity built in. I understand that, as I plan on reinvesting the money, I need to use a 121 exchange to dodge the taxes. My dilemma is I don't just want to buy one property at an equal or greater value. I would like to buy multiple properties and not have to set aside a large portion of my earnings for the man. Is the only way out by purchasing a multi family unit? What do you suggest?

v/r,

Manuel

@Angel Gracia  way to go! If you have occupied your primary residence for at least 24 months consecutively, gains are tax-free up to (don't quote me on this) $250k if single, $500k if married filing jointly.  Don't think you have to exchange into anything.  Great news, right?  If you have occupied less than 24 months, the tax-free gain is a percentage of the 24 months you've been there.

Originally posted by @Steve Vaughan :

@Angel Gracia way to go! If you have occupied your primary residence for at least 24 months consecutively, gains are tax-free up to (don't quote me on this) $250k if single, $500k if married filing jointly.  Don't think you have to exchange into anything.  Great news, right?  If you have occupied less than 24 months, the tax-free gain is a percentage of the 24 months you've been there.

 Awesome news! I've been living in the house for four years!!! So no capital gains tax, but I would have to claim it as income correct, even if I reinvest?

Income from what?  Did you rent a portion out?  This will be on your Schedule D.  Take a look at the form @ www.irs.gov    When I did a sale of a primary a few years ago, I don't remember reporting 'income'.  I AM NOT A TAX GUY!  If you need more tax advice I can ping a helpful, knowledgeable CPA for ya.

I would take a look at the IRS website that states the rules regarding the sale of your home. 

http://www.irs.gov/taxtopics/tc701.html

This explains things quite well.  Remember that's only for Federal taxes.  Your state may have different rules. 

Robert Breen, Real Estate Agent in MI (#6502376288)

i would also look into the rules for a 1031 exchange.  You may not be limited to only purchasing one property.   From what you have posted it seems you don't have to go through the expense of a 1031 exchange but just in case you may want to look more into it.  

Robert Breen, Real Estate Agent in MI (#6502376288)

principle residence only with no rental income or depreciation claimed on tax returns - the 250/500 rule applies with 24 month holding.  Impossible to do a 1031 with principle residence.  Property held for investment of any type and handled as such on tax returns - a 1031 exchange candidate.

Gain more than 250/500 on your own house - be prepared to write a check for federal and California state on gains above this limit. Long term capital gains federal and regular income state.

As my grandfather said, it is hard to loose money paying taxes.

They are not fun though

Hi Angel,

It sounds like this property has been your primary residence for the last four (4) years, so you will qualify for the 121 Exclusion (not 121 Exchange).  This means that you can exclude up to $500,000 in tax free gain as a married couple.  You do not qualify for a 1031 Exchange since it is not a rental property, but your gain is likely going to be all tax free anyway, and there is no requirement to reinvest so you can take all the time you want to decide what to do/buy.

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