Tax guys please help! Capital gains question

10 Replies

We are going to use a tax professional this year for the first time and need some guidance. We bought a duplex in Spokane Washington in 2015 as our primary residence. We lived there for 10 months and then moved to Ohio to be close to family and new career opportunities (starting full time in real estate rentals). Now we are selling that property as I can make a better return on the money buying and managing it myself rather than paying a property manager. We are selling the property for 230,000 but we are paying $13,800 on closing fees and another $10,000 or so on inspection repairs. I understand the 2 year out of 5 rule, but I’m not sure if I would qualify for any of the special exemptions. There was also a mortgage on the property that was paid off for 95k. Any help would be appreciated. I think it’s too late for a 1031 exchange as I believe the money is in the mail for me. Any suggestions? Thanks! 

James:

It wasn't clear if this is one of your questions, but your gain should be net of all costs, including closing and repairs before closing.

It may not be too late to engage a 1031 specialist.  Give one a call.   

If you cannot do a 1031, another strategy to reduce capital gains for this tax year is to buy a property as soon as possible and take as much bonus / accelerated depreciation as possible.

Talk to your tax advisor.  They can save you a lot more money than you will spend for the consultation.

Originally posted by @James Defazio :

We are going to use a tax professional this year for the first time and need some guidance. We bought a duplex in Spokane Washington in 2015 as our primary residence. We lived there for 10 months and then moved to Ohio to be close to family and new career opportunities (starting full time in real estate rentals). Now we are selling that property as I can make a better return on the money buying and managing it myself rather than paying a property manager. We are selling the property for 230,000 but we are paying $13,800 on closing fees and another $10,000 or so on inspection repairs. I understand the 2 year out of 5 rule, but I’m not sure if I would qualify for any of the special exemptions. There was also a mortgage on the property that was paid off for 95k. Any help would be appreciated. I think it’s too late for a 1031 exchange as I believe the money is in the mail for me. Any suggestions? Thanks! 

If you're using a tax professional why are you asking here? 

You may qualify for a partial exclusion- but we don't even know how much the gain is right now because we don't know what you purchased it for. 

You will still have a taxable portion from depreciation taken over the last few years . 

How much was the purchase price of the home and any renovations?  How much was taken in total depreciation

Hey Natalie I’m asking on here because I have not secured a tax professional yet but I’m planning to. I forgot to mention the purchase price whoops. 127,500 in 2015. We put approximately 7,000 in repairs and improvements over the years...possibly slightly more. Over the last 4 years I will have to check, but I believe around 4K depreciation a year. 

I’m just trying to get an idea if it would be in my best interest to do a 1031 exchange, or if it’s very little in capital gains, I will keep the cash on hand and wait for the right deal to come along. Thanks for the help everyone. 

Get the Nolo landlord tax deduction guide book. It answers most of your questions and after reading the chapter about selling real estate,  you will be able to talk to your tax pro much more intelligently and also ask the right questions.. 

@James Defazio  If the property has closed then no 1031.  The check’s  in the  mail the deed will have been recorded.  

If it hasn’t closed and you haven’t received the proceeds then you can 1031.

Hey everyone thanks for the suggestions. Dave, we have closed on the property, but 10k is still being held back to do the necessary inspection work so I have not received the funds yet, and we have 30 days to complete the work agreed to on the inspection. Would that make a difference on securing 1031? It sounds like I might owe some substantial CG taxes and it might be worth while if possible. 

@James Defazio Yeah if that’s the case you should call the title company first thing Monday morning.  If they have not recorded the deed and you have not touched any money there is a chance we could work with them to pull it off.  Sometimes the stars do align just right!!