All Forum Posts by: Dallas Jacobsen

 How does a refi on mass cap gains affect this situation?

Thank you for the valuable input!  I spoke with a professional tax guy, and basically I am stuck paying capital gains on the gains above $500k (minus closing costs, minus significant improvements to our house like a new roof, etc).

I asked him about some of the ideas posted here:

1. Qualified Opportunity Zone fund:  apparently you can't touch the money for 10 years.  So I'd have to increase my mortgage on my new house by $500k, and wouldn't be able to use that $500k - meanwhile, I'd pay 5-6% interest each year on the $500k balance.  That would stop being a benefit after a couple years.  The QOZ sounds like a great idea for people who don't need the cash now - but unfortunately, I do need the cash now.

2. The STRs have to be equipment, not a residence.  I'm not sure the details, but investing in an RV may be hard to actually recover your capital, since RVs are depreciating assets - they actually go down in value, not just a tax thing.

So thanks again for the input, and count me as a contributor to paying off our Country's national debt.

Hello,

We are selling our primary residence after living there for 10 years, and will gain nearly $1M (purchased $390k, sold for $1.375M).  We are immediately buying another house for $1.2M.  As a married couple, we get $500k capital gains for free - but anything we can do beyond that, to avoid paying capital gains on the other $500k?

In case it matters - selling in Washington, buying in N. Carolina.

Thank you!

@Steve Babiak A lot of people talk about moving back in for a few months to a rental to regain the "24 out of 60 months" status, but in our case that doesn't work.  We have been out for 38 consecutive months, so would have to be back in for 24 consecutive months before we had the 60 month pipeline full of 24 months of us living there.

Well, we have made our decision, thanks for input from you guys.  Thank you @Sid Roberts, @Greg Harriman and @Dave Foster

@Dave FosterWe decided to keep the rental house for at least another year.  I just posted it for $200 higher than it was renting at, and have been flooded with responses.  At least 30 confirmed people plan to attend the open house.  I wish I had posted it for another $100 higher...

Does anybody have a suggestion for gracefully racing the rent two days before the open house?  Should I just ask the final applicants if they are interested in the house enough to compete on price?  I don't know if this would be breaking any landlord tenant laws.

@Chris Newman It's a privilege to hear from someone who's been in the business for so long!  

I'm not so impressed with the Light Rail.  I rode it from Seatac to Seattle once, and I think it averaged 30 mph, and it wound through neighborhoods worse than a city bus.  If I had to commute from Everett to Seattle and could choose between a twisting jerking train like that, or an express bus, I'd chose the bus.  At least the bus can go 60 mph at times. But maybe they'll do better with the northern portion of the track....

If I hold this property, it will cash flow (pay it's own mortgage only, nothing for maintenance) for another 12 years, at which point it will be debt free, and I'll get $2500 / month (assuming rents keep rising).  But I'd wonder if a fourplex in the area would get to debt free status faster.

@Account Closed I refinanced to a 15 year mortgage (no cash out) this year already.  I guess I could get a equity loan when I need the cash for maintenance.  Thanks for bringing that up.

@Dave Foster, I'm hoping my reading of Pub 523 is right, and no I'm not in the CIA, or anything.  See Section 5.b.  It's about 2/3 of the way down this page

https://www.irs.gov/publications/p523/ar02.html#en...

My calculations above were not quite right, you calculate the exclusion limit a couple different ways.  In my case:

1. The number of days (or months, it you prefer) your home was your residence during the 5-year period leading up to the sale.
2. Divide by 730 days (or 24 months); calculate to 3 decimal places. If the result is less than 1, enter the result. If the result is greater than 1, enter “1
3. Multiply by $250,000
4. If you are married and filing jointly, repeat the entire calculation for your spouse, again using $250,000 as your spouse's reduced exclusion limit. Then add your spouse's reduced exclusion limit to your own. 
5. If you are married and filing jointly, this is your exclusion limit

For me this is approximately:

1. 22 months
2. 22/24 = 0.917
3. 0.917*250,000 = $229,250
4. Do this same math again, add them together, I get $458,500 of exclusion limit.  So capital gains of $458,500 would be tax free for me.

Do you agree, or am I missing something?

@Sid Roberts Interesting to hear your perspective.  Do you think the market in Lynnwood is going to continue to rise quickly, or level out?  The recent growth has made the market look like a bubble, but here's a perspective that may indicate it's not... Look at a Lynnwood house value from 2005 (3 years before the peak), compared to today.  That gain is only about 4% per year, because it took such a hit in 2008.  Interested to hear what others in the area think.

@Dave Foster I thought I barely missed the exclusion based on "2 out of the last 5 years", but I read IRS publication 523, and after that point, it switches to a prorated amount, it doesn't completely drop from $250K to $0.  So I lived there 7 years, and rented for 3, so I get (7/(7+3))* $250K = 0.7*$250K = $175K of tax free gains.  (I think I did the math right).

But as @Greg Harriman pointed out, I will have to pay on the depreciation.  Interestingly, even if you didn't claim the 27.5 year straight line depreciation, you have to pay as though you did....

@Aaron Gowin I only started looking in Texas, so don't have any good input yet.  At first I decided to avoid the capital expenditures associated with older buildings by buying a new home for $130K.  (If you look, those do exist.)  But again, I could get some instant cash flow, but would not benefit from any amount of leverage, and probably not much appreciation. I'd love to hear which way you guys decide to go!  It's pretty neat having options like this to consider.