Tax on capital gain on SFH/ WA

General Real Estate Investing
5yFollow

Tax on capital gain on SFH/ WA

Tiffani T.
Investor · Renton, WA · Member since 2017 · 56 posts · 31 votes

Hi BP,

So here is the scenario: If one bought a SFH in 2012 for $190, now worth about $500. Selling this piece for $490-500. Is he/she responsible for the capital gain? Any input would be great. Thanks everyone

TM

0Reply
26 views

Most Popular Reply

Jake DeAtley
Realtor · Olympia, WA · Member since 2017 · 155 posts · 57 votes
5y

hi @Tiffani T., I am not a CPA, however it is my understanding that you have to live in the home in at least 2 of the last 5 years since owning it. Thus, any profits you gain from the sale of this house would be subject to capital gains. The only way I am aware to really avoid this is to use the 1031 exchange, or move into the property for a couple of years :) 
There are other strategies to mitigate or minimize tax impact if you owned it outright and did something creative like a lease to own or owner financing. Happy to be of service in any way I can as well! 

2Reply
See this reply in the discussion

12 Replies

Jump to latestLatest
  • Jake DeAtley
    Realtor · Olympia, WA · Member since 2017 · 155 posts · 57 votes
    5y

    hi @Tiffani T., I am not a CPA, however it is my understanding that you have to live in the home in at least 2 of the last 5 years since owning it. Thus, any profits you gain from the sale of this house would be subject to capital gains. The only way I am aware to really avoid this is to use the 1031 exchange, or move into the property for a couple of years :) 
    There are other strategies to mitigate or minimize tax impact if you owned it outright and did something creative like a lease to own or owner financing. Happy to be of service in any way I can as well! 

    2Reply
  • Tiffani T.
    OP
    Investor · Renton, WA · Member since 2017 · 56 posts · 31 votes
    5y

    @Jake DeAtley  Thanks for the input Jake! Well this has been a rental property for many years and still is..Sorry, I meant to say home was purchased close to 10 years ago. I have heard of 1031 exchange but I am not very familiar with this.  Do you have any resources on its rules and regulations?  T

    0Reply
  • Diane E.
    Murphy, TX · Member since 2014 · 20 posts · 21 votes
    5y

    https://www.biggerpockets.com/... answered in the 1031 Exchange forum.  You will also find qualified 1031 intermediaries contact information.

    1Reply
  • Jake DeAtley
    Realtor · Olympia, WA · Member since 2017 · 155 posts · 57 votes
    5y

    @Tiffani T. 1031 exchanges can be tricky to pull off in todays market, but its still possible. Probably the best way to go about it is to get initially set up with a 1031 professional, then find the property you want to acquire and get a contingent offer accepted. If you show that you have a property that is ready to sell and will go fast, you may be able to get a contingent offer accepted in this market. 
    I am taking a 1031 exchange class in the beginning of Feb from these guys referenced below. McFerran law. They are Based out of Tacoma and seem very willing to answer questions via the phone number below!-

    0Reply
  • Tiffani T.
    OP
    Investor · Renton, WA · Member since 2017 · 56 posts · 31 votes
    5y

    Thank you!  I will look into this.  I am more than 100% certain this property can be sold in a a few days but I don't intent to sell this long-term rental property, which as already becoming of me lol for the last 9.5 years, if it does not bring more positive cashflow. 

    TM

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Tiffani T., If that property has been a rental then the 1031 exchange is going to be the answer to defer all tax and depreciation recapture.  @Jake DeAtley is right there can be challenges.  But there are many ways to mitigate the compressions the IRS allows you.  It all starts with you QI - The qualified intermediary who's only job is the 1031 portion of your transaction and your guide through the process.

    Your scenario looking for better cash flow after some years of great appreciation have sapped your ROI is exactly what the 1031 was designed for. You can sell your asset and use the proceeds to purchase multiple replacements that have better cash flow and ROI.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    0Reply
  • Lauren SpeidelPro Member
    Qualified Intermediary for 1031 Exchanges · Chicago, IL · Member since 2017 · 164 posts · 119 votes
    5y

    @Tiffani T. The 1031 Exchange is probably your best option. Of course, having a discussion with your tax advisor/accountant would be your first step. While you purchased the property for $190k, capital improvements could increase that number and depreciation you've taken would decrease that number and what you are left with is your adjusted cost basis. Your gain will be your net sales price versus your adjusted cost basis. Typically we see investors pay anywhere between 25-40% (could be more or less) roughly in taxes off the gain. If you are planning to reinvest into another rental property or investment property, an Exchange will allow you to defer your tax liability and have your full net sales price working for you in another asset. A 1031 Exchange can be a wonderful tool for someone looking to grow their wealth through real estate investing. 

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    For now in WA there are no tax implications but Inslee has proposed a 9% cap gain tax on gains above $25k for individuals, $50k if married.    Stay informed.  

    2Reply
  • Ken Naim
    Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
    5y

    @Tiffani T. Hi Tiffany, it depends on several factors. If it was your primary residence for 2 of the last 5 years and your married and file jointly you could pay 0. If it is an investment property and you haven't lived in it forc2 of the last 5 years, you'll have to pay long term capital gains, most likely 15%, but could be 20% if your single or make more than 441k combined with the capital gain. There could also be deprecation recapture which can be taxed at 26%, which will depend on how much was depreciated since 2011.

    0Reply
  • Sherief Elbassuoni
    Realtor · Bellevue, WA · Member since 2019 · 882 posts · 1k+ votes
    5y

    @Tiffani T., I am not a CPA or Tax Attorney. What I know though is that this depends if you lived in the proeprty or not. If you lived in it 2 out of the last 5 years as a primary residence, you can pay nothing. If it is a pure rental, 1031 will be your best option. For 1031, you will need a qualified intermediary. With this hot seller market, you may need to identify what you are planning to buy before selling your property. 

    Feel free to reach out. I am always open to more conversation over phone or coffee!

    1Reply
  • Tiffani T.
    OP
    Investor · Renton, WA · Member since 2017 · 56 posts · 31 votes
    5y

    @Sherief Elbassuoni I've owned this property for about 9 years and have yes..lived there for about 2 years..to qualify for the loan as a first-time home buyer at the time. I have done some research on 1031 and it seems like this is the only option I have for the best outcome. This may bear some hurdles which may include buying one with much higher price due to this current RE climate. Can a RE agent/broker manager 1031?  Is it necessary for acquire RE lawyer into this matter?

    Thank you for your input!

    TM

    0Reply
  • Tiffani T.
    OP
    Investor · Renton, WA · Member since 2017 · 56 posts · 31 votes
    5y

    @Dave Foster Dave, I noticed you have some excellent online resources on 1031.  These have been helpful! Thank you.

    .

    @Dave Foster

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free