Conundrum: Oak Park VS Berwyn IL

[Account Closed]

A lot of interesting things going on in Oak Park IL. A few years back the city made the decision to embrace high rise structures, since than upscale high density condo and apartment construction has increased significantly, and there is more on the way. A local real estate agent told me they expect a 10% population increase over 5 years. The property taxes in Oak Park are both crazy high and unpredictable. Despite the potential for appreciation being a landlord in Oak Park is a PIA. A lot of rental competition, very entitled pool of potential tenants. I own in Berwyn also, my experience is much different there, nothing interesting going on with new construction. Have the same Berwyn tenant nearly 4 years, never gives me a headache. My Berwyn property was purchased about 20% below market, and has about doubled in value from my purchase price. Thinking about selling it and using the funds to purchase another property in Oak Park, because I see more upward potential. Have trouble wrapping my head around if its worth dealing with both the capital gains taxes and likely more difficult tenants, for the sake of greater potential property appreciation?                       
 

[George Skidis]

There will be disagreement on whether or not Illinois is a wise investment. For those of us who live here and are making it work we see no exit signs in our future.

Your question was actually about income tax consequences. Start with your basis (purchase price and improvements prior to occupancy) + Capital Improvements to date.  That number is your Total Investment for tax purposes. From Total investment subtract accumulated depreciation which equals Sale Amount not subject to capital gains. 

Example Basis $100,000 + Improvements $50,000 = $150,000 Total Investment Depreciation would be Approximately $5,454.55 per year. If you own the property 10 years the depreciation would amount to $54,545.00 at time of sale. $150,000 total investment less $54,545.00 Depreciation = Not taxable amount of $95,455.00 So if your property has doubled in value to $300,000.00 you will owe capital gains tax at your current rate on a profit of $204,545.00

Unless you can defer that tax with a Starker Exchange, the question you need to ask is at the new tax rate, can you afford to pay the tax?