Selling my investment property and looking at a profit of around $300k, wanting to re invest in SFR but what kind of taxes would I be looking at(depending on income bracket) and any ways to avoid?
my wife and I make about 100k together working, but have owned the investment property for 2years and have made improvements,thus raising rents, and have have about $40k invested into property including closing cost from 2013. Just trying to get a figure of what kind on money I would be giving dear Uncle Sam in this situation, and is there any ways to avoid/ decrease Uncle SAMs take. Any advice would be greatly appreciated!
One strategy that you should consider is the 1031 Exchange. The 1031 Exchange allows you to sell your current property and defer the payment of your taxes by reinvesting in one or more replacement properties. It keeps your money working for you (in your own pocket) instead of paying taxes to the government. It also allows you to diversify your investments by trading into more units or larger properties in order to increase your cash flow. It is a great wealth building tool by keeping your money building wealth for you instead of paying taxes.
Check out this link, http://apiexchange.com/index_main.php?id=8&idz=117 ,it is a calculator which will help you calculate your capital gains.
This should give you a good idea, but you may want to reach out to your accountant and have him tell you what kind of tax consequence you would have when selling.
If you want to reinvest in a SFR that you are going to use as an investment, you may want to look into a 1031 exchange. There are tons of threads on BP about exchanges.
I'm not a tax expert, so speak to your CPA before doing anything. However, my understanding of your basic capital gains tax calculation is the following:
1. Calculate your adjusted basis at time of sale:
Original purchase price (basis at time of acquisition)
+ capital additions (renovations and major repairs)
- cost recovery (depreciation taken since purchase)
= adjusted basis at time of sale
2. Calculate your capital gain at time of sale:
- costs of sale
- adjusted basis at time of sale
= gain or loss
- cost recovery (depreciation taken)
= capital gain from appreciation
You can use 20% as a likely capital gains tax rate.
Also, you have to pay 25% tax on any depreciation taken during the time of ownership. This is in addition to the capital gains tax.
If you have significant capital gains then a 1031 exchange is definitely a great idea.
Thanks for all your advice gentlemen! the 1031 is where I was likely to go since I was planning on re-investing in a couple more properties, Ill keep you updated on how well it goes!
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