Selling a house from portfolio. How to determine capital gains?

Buying & Selling Real Estate
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Selling a house from portfolio. How to determine capital gains?

Tigran Kalaydzhyan
Lender · Abilene, TX · Member since 2019 · 50 posts · 24 votes

I am buying a real estate portfolio from another investor. The purchase agreement has only one price for the total portfolio. Now, if I decide to sell one of the properties in the future, how would I determine the capital gains to pay taxes? What is the purchasing price of one house within a portfolio? Should I take <portfolio price>/N, where N is the number of houses?

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Mark Allen
Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
6y

@Tigran Kalaydzhyan

You’re going to have to allocate purchase price for each asset for tax purposes. Good conversation to have with a CPA who also invests in real estate. This PPA will be your basis, should you sell individual homes and have to pay capital gains and depreciation recapture.

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  • Account Closed
    Rental Property Investor · New Braunfels, TX · Member since 2018 · 141 posts · 103 votes
    6y

    @Tigran Kalaydzhyan

    You should be getting cma’s or appraisals on each of the properties before you buy them. Even though you are paying one lump sum you still need to know what each property is worth individually. How else will you know if you are paying too much for the portfolio without cma’s or appraisals?

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  • Tigran Kalaydzhyan
    OP
    Lender · Abilene, TX · Member since 2019 · 50 posts · 24 votes
    6y

    @Mike Kirby

    I am looking at the tax assessments and comps and see that the total purchase price is well below the sum of the approximate market prices (I'm buying it off the market). I'm not doing the appraisals, because I'm buying it for cash, no lender is involved. Even if I did, how is the appraisal related to the purchase price?

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  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    6y

    @Tigran Kalaydzhyan

    You’re going to have to allocate purchase price for each asset for tax purposes. Good conversation to have with a CPA who also invests in real estate. This PPA will be your basis, should you sell individual homes and have to pay capital gains and depreciation recapture.

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  • Tigran Kalaydzhyan
    OP
    Lender · Abilene, TX · Member since 2019 · 50 posts · 24 votes
    6y

    @Mark Allen

    Thank you, PPA is a good idea. Do you know if I have to do that before/during/after the purchase?

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  • Natalie KolodijBusiness Member
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    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    6y

    Your CPA will help you set up the depreciable basis and allocate a portion of purchase based on each house any way. 

    Once that set up is done there won't be any calculation issues moving forward. An appraisal of each property would help too. 

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
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  • Tigran Kalaydzhyan
    OP
    Lender · Abilene, TX · Member since 2019 · 50 posts · 24 votes
    6y

    Can I do PPA using the tax assessed values? I didn't do the appraisals of the properties.

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