Taxes to sell rental property

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Taxes to sell rental property

Ryan N.
Member since 2018 · 23 posts · 14 votes

Looking to see how much in taxes I would pay to sell house.

Paid=$123k

Selling=$180k

Owe=$89k

Located in NC

Owned house 16 years but have not lived in home in over 6 years.

Got ruff estimate on how much in taxes I will have to pay?

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y

Yes, for a 1031 exchange to defer all taxes you must do things:

1) buy the same value or more as you sell for (less direct selling costs)

2) reinvest all of the cash proceeds from the sale

For a straight up sale, rough numbers:

Assuming you spent $10k or so on improvements, roof, a/c replacement, etc (ignore if you didn’t)

Your basis would be $133k

Depreciation deduction over 6 years, roughly $3500/yr (building value only, plus any improvements/27.5 years, assuming value at time of rental conversion exceeds your cost basis) $21k taxable at your ordinary income tax rate, Max 25%.

Cap gain, assuming $170k net proceeds from sale;

$170k minus $133k (if you had $10k in improvements)=$37k taxable as cap gains at likely 15-20%

Of course the exact numbers and your personal income situation determine the exact numbers

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    7y

    @Ryan N., 

    Your gain without factoring any selling expenses and without factoring any improvement done to the property is 57k.

    If this house was rented, the part of the gain would be taxed as unrecaptuted depreciation at maximum rate of 25%, rest will be taxed at either 0%, 15 or 20% depending on your tax bracket.

    I would recommending pulling up your original purchase document to increase basis in your property from 123 to minimize gain. Some of the closing cost can be added to the basis. 

    Also if you pay commissions on sale and other expenses will decrease your gain.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    7y

    @Ryan N.

    I am having a tough time understanding all the numbers

    Is the amount of $123,000 paid the purchase price of the house or the cash that you had to put down for the house?

    The only reason I ask is because if the purchase price was $123,000, I have a hard time believing that after 16 years you still owe $89,000 on the house.

    What did you do with the house for the past 6 years; was it a rental property or a 2nd home/vacation home?

    Ultimately, you will pay 0,15 or 20% on amount subject to capital gains tax
    25% on amount subject to depreciation recapture
    North Carolina Income Tax rate of 5.499%

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  • Ryan N.
    OP
    Member since 2018 · 23 posts · 14 votes
    7y

    Hello, thanks for the replies.

    I refi a couple of times...I have been renting the home the last 6years.

    0Reply
  • Ryan Ragano
    NY · Member since 2018 · 9 posts · 3 votes
    7y

    Ryan,

    We need more information to determine the amount of depreciation recapture.

    0Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Ryan N. I imagine you have improvements during the 10 years you lived in the house that should have been capitalized into basis and depreciated after the change in use.  Original purchase price is just the starting point.

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  • Ryan N.
    OP
    Member since 2018 · 23 posts · 14 votes
    7y

    Possibly looking into a 1031 exchange...

    If I sell my house I would incur around 57k worth of gains.

    If I do a 1031 exchange do I have to find a property worth $180k or more...Or just something I can roll the $57k into...say a $110k house and I put $57k down....???

    Can anyone clarify for certain as I have heard if I do buy a lesser value house I would be hit with heavy taxes also.

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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    7y

    @Ryan N.

    With a 1031 you need to reinvest the full proceeds. 

    However if you looked into a qualified opportunity zone investment you only need to reinvest the gain. It's similar to a 1031 but requires you to buy in certain areas, and substantially improve the new property. 

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    Yes, for a 1031 exchange to defer all taxes you must do things:

    1) buy the same value or more as you sell for (less direct selling costs)

    2) reinvest all of the cash proceeds from the sale

    For a straight up sale, rough numbers:

    Assuming you spent $10k or so on improvements, roof, a/c replacement, etc (ignore if you didn’t)

    Your basis would be $133k

    Depreciation deduction over 6 years, roughly $3500/yr (building value only, plus any improvements/27.5 years, assuming value at time of rental conversion exceeds your cost basis) $21k taxable at your ordinary income tax rate, Max 25%.

    Cap gain, assuming $170k net proceeds from sale;

    $170k minus $133k (if you had $10k in improvements)=$37k taxable as cap gains at likely 15-20%

    Of course the exact numbers and your personal income situation determine the exact numbers

    2Reply
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