i am thinking to sell my rental. seems like i am out of luck re: capital gain exemption (rented it for more then 5 years ;()
i do have a HELOC but i used it to improve my primary residence. any experts out there know if this counts?
any strategies to reduce the capital gain tax in my case?
@Ana Cherm you haven't said why you want to sell your rental. Is it no longer generating positive cash flow with the HELOC? Sounds like you already took out your equity with that? The HELOC does not affect your expired capital gains tax exemption that existed if you lived in the property for 2 out of the last five years.
You could 1031 exchange the property for another one to defer paying the capital gain until later. Capital gains taxes are pretty low IMO and unless you have a really large gain, I think they are only likely to increase from where they are now.
NOTE: I'm just talking ideas and strategies to consider - no tax or financial advice given. :-)
I'm not a tax advisor, but I just sold my first rental property and did so under a 1031 Exchange. You can defer your capital gain on the property by getting the account setup by an exchange intermediary before you close the property. The catch with this is that you have to buy 1 or more properties and those properties are purchased using the proceeds from the rental sale. There are many rules and the most difficult is that you have to identify 1 or more properties within 45 days of closing the sale of the investment property. You must close on one or more of the properties within 180 days of the closing of the sale of the investment property.
You aren't allowed to handle any of the money in the account unless you notify them in writing. In that case they would return your money and it would be subject to capital gains tax. You can get more information from the company that I used: http://www.1031corp.com. They did a smooth job during my closing. I'm currently in my 45 day identification period and did find a replacement property (as they call it). I hope that helps.
thank you for replies guys ...
the rental still bringing income that is paying the heloc and other property related expenses. i think i am just getting tired of handling the problems with neighbor, who was harassing my tenants and i probably most important - i am ready to pay off my main residence (currently paying the principal anyway and have no tax benefits from it).
also getting new baby and extra money from no-mortgage would go to child care (doubt it is a considiration for IRS for reducing my tax :))