Will I pay Capital Gains or is it considered an exchange?

8 Replies

Hi, I'm very new to Real Estate transactions.  Before I make a costly mistake I'm hoping someone can shed some light on what the consequences are of selling my condo.  I purchased 04/16.  My then fiancé purchased a duplex 01/17 and we married 09/17.  I can sell my condo and profit around $100k and house hack the duplex so our max out of pocket each month as long as our rental stays occupied is $300.  

How much in taxes will we pay as a result of the sale?  What are our options to minimize our tax liabilities?

Thanks in advance for your assistance, looking to list condo in December.

Congratulations on getting married.

You have owned the condo for over a year, so if sold (and not a 1031 exchange- if it has only been personal use 1031 is not an option), you will pay long-term capital gains on it (0%,15%, or 20% depending on your other income).

Your gain is not necessarily your equity. It is the proceeds on the sale less your basis (purchase price plus significant improvements less tax depreciation).

Thanks for the fast response.  I thought that might be the case. 

You can rent it for a year or two, then 1031 it.

@Danielle Lueck

I am sure you have thought about this already but, I am guessing you will be at 20% capital gain rate (with the joint income) on the 100k gain ( so 20k in the capital gain taxes) 

Under the current code, you can save that 20k if you own the house for at least 2 years. So, maybe you guys can move into the condo for few more months to meet the timing requirement so that you can save that money. 

Duplex can be rented until then, once you are ready to sell the condo and lease is up on the duplex, you can house hack the duplex and sell the condo. Just a thought. 

Note: the sale of primary residence exclusion is 2 out of last 5 years under current law, but the new Tax Changes have proposed the"5 out of 8 years". I dont know what will be final results. 

@Danielle Lueck

Very strange for the normally extra-thorough @Ashish Acharya , but he did not mention that you might be able to avoid capital gains on this sale under "partial exclusion" rules. That is assuming that the condo was your residence prior to marriage and the marriage was the reason you moved out.

Also, as @Brian Schmelzlen pointed out, I'm not sure whether $100k represents your taxable gain. But it is irrelevant if you can qualify for the partial exclusion.

@Danielle Lueck my suggestion would be if you don't need to sell it. Don't rent it out! and then like @Wayne Brooks said when the time comes you can either sell it or do a 1031 exchange to something better when the time is right. No reason to pay capital gains if you don't need the cash to eventually make more money. Unless you need the cash now.

516-242-2365
Thanks gentlemen that was awesome advice from each of you! I think we qualify for the partial exchange, I will look into that option. $20k in tax saved would be a great down on another investment!

@Danielle Lueck , you have such a short amount of time to go until the 2 year mark hits. I'd move back in until that time, then pay NO taxes. The1031 only defers taxes. Note, the new tax law proposal has you living there for 5 of the last 8 years, so if that passes and is retroactive to 1/1/17, the 1031 would be the better bet.

Mindy Jensen, Real Estate Agent in CO (#FA100049656)

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