Personal residence sale tax question

12 Replies

I did a search to see if I could find anything on this but no luck. I am about to put my personal residence up for sale within the next month. At the moment I haven't done any investment deals so I don't have any experience with this. The way I understand it is if I list my house with an agent I can write off the real estate commission that I pay the agent for an investment property. Correct me if I'm wrong on that. But someone told me tonight that I could do that for a personal residence too. Is that possible? 

@Joe D. You don't technically "write them off" but they do reduce the gain on your property. Commissions are classified as selling expenses and are added to your cost basis to reduce your overall gain. So for a simplistic example, if you bought the property for $100k, you have no other expenses than real estate commissions of $5k, and you are selling the property for $120k, your gain will be $15k ($120k - 105k).

Hope this helps.

Yes.  The commission is considered a selling expense and is deducted from the sales price when computing the gain or loss on the sale.

Originally posted by @Brandon Hall :

@Joe D. You don't technically "write them off" but they do reduce the gain on your property. Commissions are classified as selling expenses and are added to your cost basis to reduce your overall gain. So for a simplistic example, if you bought the property for $100k, you have no other expenses than real estate commissions of $5k, and you are selling the property for $120k, your gain will be $15k ($120k - 105k).

Hope this helps.

 Great! Thank you Brandon!

Also, if you've lived in the house for at least 2 years as your primary residence, the gains are tax free, up to $250k, $500k married.

Yeah, I've lived in the house for 5 years now, but I really don't think I have much equity in it. It was a bad deal, I'm just hoping to break even on it.

Ok. There are other ways to sell your home than the traditional way of a long listing agreement and high commissions.  Without much if any equity and the personal residence exemption, tax write-off concerns aren't what I would be focusing on.  A low equity home may be a candidate to offer as a lease with option to buy if you can re-qual for your next home.  The bank will count 75% of your new rental income as additional income for your new loan.  I would seriously consider offering my home as a lease option at top of market value and top or even a little over of market rents (with the tenant/buyer covering the first $150 of maintenance/repair issues) with 3% consideration for a term of 18-24 months. Offer a separate lease with separate option to buy, not a 'rent-to-own' all spelled out in one agreement.  If they stop paying, you need to be able to evict, not foreclose.  Hope this helps @Joe D. !

Thank you @Steve Vaughan , I've considered doing a lease option, and it's still a possibility, but I really just want to wash my hands of this house. It was a bad deal that I got into 5 years ago and has been a thorn in my side ever since. I'm just done with this house and it's time to move on with my life. I'm not ruling out a lease option, it may just be the best way for me to go, but I think for my own sanity it would probably be best if I got rid of it and start over. So, I'm gonna weigh my options so to speak and go from there.

@Joe D. I understand the need to rid yourself of an investment or house. I got one of those, too! A lot of your options will depend on what your next move is going to be. Are you planning on renting for a couple years, or do you want to buy again right away? If you want to buy again right away, you may be stuck with a FSBO or the realtor thing. Sound like with a realtor you may have to bring some cash to the table to close. If you have a couple years, more options are available to you.

@Steve Vaughan my plan is to rent for a few years so I can look around and find something that needs work but can be bought at the right price. From there I plan on getting into the investment game.  

I know it sounds weird, but I had a very bad experience with this house. I lost a hell of a lot of money that I will never get back. I had to put about $30k into unforeseen repairs in the house after I bought it. I just want to be done with it and move on with life. The one good thing about it was that because of it I found Biggerpockets. I just wish I would have found Biggerpockets and did my research before I bought this house. I never really wanted to be an investor, but because of this I found out that I really want to be a real estate investor. 

@Wayne Brooks May be you can help me too.

Bought the house as primary in Dec 2011, lived in it through Aug 2013 then leased it out from Sep 2013 through Feb 2015. Now planning to list it in next 2 weeks.

Would I have to pay gains tax? I know technically I have not lived in it for 2 years (it was 3 months short).

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Yep, no exclusion.  Talk to your CPA, you've got some depreciation/recapture issues to consider.

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