Tax implication of selling one property from commercial loan

Investor · Southern Indiana, IN · Member since 2017 · 178 posts · 95 votes

I have multiple duplexes under a single commercial portfolio loan. I'm interested in selling one of the properties and leaving the loan intact. If I sell one of the properties is it considered 'taxable gains'?

My goal is to use all of the funds for renovations of the remaining properties in the portfolio, so I'd like to know if I'm going to owe taxes on the proceeds of the sale. I'm consulting a tax attorney as well, however I wanted to get the BP community's input and see if someone went through this before.

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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
8y
@Ali Hashemi,
Type of loan has nothing to do with taxes.
If you sell a rental property, you will be taxed even if you use the proceeds to buy another property, renovate, or personal use. It does not matter.
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Ali Hashemi
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Investor · Southern Indiana, IN · Member since 2017 · 178 posts · 95 votes
8y
Thank you @Ashish Acharya, but how are “gains” calculated? Because taxes are only paid on gains correct?
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
Your gain will be determined by the cost basis in That duplex, verses your sales price. Even if you bought them all as a package, there has to be a break out for each property somewhere in your documents/past tax returns. You will of course have to get a partial release from your lender and likely pay down the mtg somewhat.
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Stanley Bronstein
Attorney, CPA, Broker & Author · Scottsdale, AZ · Member since 2018 · 532 posts · 488 votes
8y
@Ali Hashemi You need to hire a knowledgeable real estate CPA to handle this for you. Discuss it with them and they can answer your questions.
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Ali Hashemi
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Investor · Southern Indiana, IN · Member since 2017 · 178 posts · 95 votes
8y
@Wayne Brooks - thank you, that’s exactly what I was wondering. So somewhere there is a breakdown in assessed property value - likely the assessment my bank did at the time of purchase? Gains are calculated against the assessed property value?
@Stanley Bronstein - yes, of course. But the BP community exists for a reason, to share ideas and experiences.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
8y
Not simply the “assessed value” but Your costs in that particular property.....if not in your purchase contract, tax returns, etc. I guess you Could use the assessed value at the time of purchase, as a percentage of the assessed value of the “package” you bought, to justify a proper number.
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Eamonn McElroy
Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
8y
@Ali Hashemi "If I sell one of the properties is it considered 'taxable gains'?"
Depends on sales price and your adjusted basis.
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Victor N.
Investor · Wellington, KS · Member since 2016 · 256 posts · 188 votes
8y
You should have been claiming depreciation for that duplex on your tax returns. If you did, there is a depreciation schedule in your income tax papers. Your taxable gain or loss will be calculated by subtracting the adjusted basis shown on that schedule from the net sale proceeds. Some of the gain will be section 1250 depreciation recapture and then maybe capital gain.
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Ali Hashemi
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Investor · Southern Indiana, IN · Member since 2017 · 178 posts · 95 votes
8y
@Victor N. - Thank you Victor. I purchased this year and haven't filed yet
@Eamonn McElroy - Thank you, it sounds like I need to get with my CPA to determine the adjusted basis cost
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