Taxes on selling properties for the same amount I bought them for

4 Replies

hi, I bought three properties 1+ years ago through a turn key company.  It hasn’t worked out as I’ve liked so the turn key provider offered to buy them back from me for the same amount that I bought them for.  

This actually sounds good as I could use some if it to pay off some debts and then reinvest the rest.

My main concern, though, is taxes.  Since I’d be selling them for the same amount I paid for them, would I have any taxes to pay?  Would I need to reinvest all of it in order to dodge taxes?  Could I keep some if it to payoff some debts and then reinvest the rest without paying taxes?

Basically I want to minimize my tax burden or not have any taxes to pay at all if possible.  Thoughts?  I’m waiting to hear back from my CPA but it’s his busy time rohot now so haven’t heard back yet so figured I’d ask here.

@Josh Pass

You might actually have a loss if you did some improvement on the property and with all the selling expense that you might incur. Also when you bought the property, some of the settlement cost would have been added to the basis, so your basis should have increased from your purchase price. 

So when you sell the property, your basis will be ( simplified 

purchase price (100k)

+Settlement cost( +5k)

+ improvement (  0 since its turn key) 

- depreciation (-5k)

= adjusted basis ( 100k) 

SAle 100k - adjusted basis 100k = no gain. 

But, the amount of depreciation you took during your rental ownership, that will be taxed at 25%.

So, if you took depreciation expense of 5k, you will owe 1.25K on taxes. 

You dont get taxed on the sale price. You get taxed on the gain. If you sell for an exact same amount, you might not have any tax, but need to know your numbers to tell you.  Only tax you might pay is depreciation recapture tax mentioned above. 

The 100k sale proceeds you get is free to pay a debt back and reinvest, no tax implication. 

Good luck. 

Originally posted by @Ashish Acharya :

@Josh Pass , 

You might actually have a loss if you did some improvement on the property and with all the selling expense that you might incur. Also when you bought the property, some of the settlement cost would have been added to the basis, so your basis should have increased from your purchase price. 

So when you sell the property, your basis will be ( simplified 

purchase price (100k)

+Settlement cost( +5k)

+ improvement (  0 since its turn key) 

- depreciation (-5k)

= adjusted basis ( 100k) 

SAle 100k - adjusted basis 100k = no gain. 

But, the amount of depreciation you took during your rental ownership, that will be taxed at 25%.

So, if you took depreciation expense of 5k, you will owe 1.25K on taxes. 

You dont get taxed on the sale price. You get taxed on the gain. If you sell for an exact same amount, you might not have any tax, but need to know your numbers to tell you.  Only tax you might pay is depreciation recapture tax mentioned above. 

The 100k sale proceeds you get is free to pay a debt back and reinvest, no tax implication. 

Good luck. 

Thanks!  That does help.  These are properties worth about $50k each.  That makes since that I’d have to pay back the depreciation. I’ll have to check those numbers.

@Josh Pass

Can you see if the properties are worth more now than what you paid for them on the open market?

I just find it iffy that the turnkey companies would be willing to "help" out just like that. You may want to reach out to an agent to see if you can get more.

If you put in any money for repairs  - that should drastically increase the cost of the property.

If you put in significant repairs into the property that were capitalized - you may actually benefit from a tax loss if you do sell it for the purchase price.

Basit Siddiqi, CPA

    Originally posted by @Basit Siddiqi :

    @Josh Pass

    Can you see if the properties are worth more now than what you paid for them on the open market?

    I just find it iffy that the turnkey companies would be willing to "help" out just like that. You may want to reach out to an agent to see if you can get more.

    If you put in any money for repairs  - that should drastically increase the cost of the property.

    If you put in significant repairs into the property that were capitalized - you may actually benefit from a tax loss if you do sell it for the purchase price.

    No, I didn’t put any money into repairs after purchase.  I bought for $50k each or so with all rehab done.  It’s the Midwest so not really much appreciation anyways.

    This is a highly rated turn key provider so I think they just want to cut their loses with me and I cut my loses with them (just don’t see eye to eye on some things).

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