All Forum Posts by: Dina Harleth

Thank you for the responses.

@Mike Wood, this is a property I own that has not yet been rented but that needs some repairs to be done. I don't have a PM yet. 

The property in question is a SFH, needing new flooring as a major repair and also several minor repairs such as hardware, cracked tiling. Is it more cost effective to just have a PM take care of this or do they generally charge a premium? On the other hand, I imagine they might have repairmen/contractors they deal with that might do the work for less. I have no knowledge about such things and would be starting from scratch, using resources such as Yelp to find repairmen. I also have very little interest. If I had to pay an extra 1-2k to have it taken care of by a PM (which I will hire anyway since I don't want to manage the property myself - I'll be a first time landlord) I would rather go that route.

Any advice / tips / feedback would be greatly appreciated. Thank you!

It was only in one parent's name. Thanks for your thoroughness!

@Donald M. To get the @ symbol to appear, type "@" and begin typing the person's name (without a space in between). Their name should pop up at the bottom of the field and then you'll be able to click on it.

Thank you so much for those links! They really clarified things for me. And @Steven Hamilton II, thank you also for your explanation. So the maximum amount any person could avoid paying any gains on would be 36,900, right, assuming 0 taxable income? In that scenario the additional gains over 36,900 would be taxed at 15% up to 400k; i.e. the next ~365k would be taxed at 15%. And then anything above 400k would be taxed at 20%. Is that correct?

Thank you again!

Edited to add: I am still confused about this comment made on my original question:

With the correct planning and timing, you may be able to avoid capital gains entirely if your annual income is low enough to put you in the two lowest brackets.

You won't owe capital gains if you're in the bottom two tax brackets the year you sell. Pretty simple to understand, but lots of details and technical to pull off.

Post can be found here:

http://www.biggerpockets.com/forums/12/topics/128749-calculating-capital-gains-on-sale-of-gifted-house

It seems to me this would be impossible given the huge amount of gain I'll be liable above the at most ~37k that would taxed at 0%.

@Ned Carey and @Mike Sattem Thanks; that is what I thought also. My financial advisor made this statement to me and I'm trying to figure out how she may have arrived at this conclusion. In the following from the IRS website on the Net Investment Income Tax the word "regular income" is used. Does "regular income" include ordinary income as well as investment income, or does is it synonmyous with "ordinary income"?

11. Does this tax apply to gain on the sale of a personal residence?

The Net Investment Income Tax does not apply to any amount of gain that is excluded from gross income for regular income tax purposes. The pre-existing statutory exclusion in section 121 exempts the first $250,000 ($500,000 in the case of a married couple) of gain recognized on the sale of a principal residence from gross income for regular income tax purposes and, thus, from the NIIT.

...

Example 2: B and C, a married couple filing jointly, sell their principal residence that they have owned and resided in for the last 10 years for $1.3 million. B and C’s cost basis in the home is $700,000. B and C’s realized gain on the sale is $600,000. The recognized gain subject to regular income taxes is $100,000 ($600,000 realized gain less the $500,000 section 121 exclusion). B and C have $125,000 of other Net Investment Income, which brings B and C’s total Net Investment Income to $225,000. B and C’s modified adjusted gross income is $300,000 and exceeds the threshold amount of $250,000 by $50,000. B and C are subject to NIIT on the lesser of $225,000 (B’s Net Investment Income) or $50,000 (the amount B and C’s modified adjusted gross income exceeds the $250,000 married filing jointly threshold). B and C owe Net Investment Income Tax of $1,900 ($50,000 X 3.8%).

Example 3: D, a single filer, earns $45,000 in wages and sells her principal residence that she has owned and resided in for the last 10 years for $1 million. D’s cost basis in the home is $600,000. D’s realized gain on the sale is $400,000. The recognized gain subject to regular income taxes is $150,000 ($400,000 realized gain less the $250,000 section 121 exclusion), which is also Net Investment Income. D’s modified adjusted gross income is $195,000. Since D’s modified adjusted gross income is below the threshold amount of $200,000, D does not owe any Net Investment Income Tax.

I have always thought it was at the capital gains rate, but someone today told me that the gain on the sale of a primary residences is taxed at the ordinary income rate. Can someone clear this up for me? Thank you!

@Sean Leone and @Tom V. I am familiar with doing a 1031 exchange. That had been my plan (after renting the property for 2 years) until a forum member mentioned that if I'm in the bottom two tax brackets the year I sell the house, I'd avoid paying any capital gains. I haven't been able to figure out the details of this, though. The idea can be found here:

http://www.biggerpockets.com/forums/12/topics/128749-calculating-capital-gains-on-sale-of-gifted-house.

@Wayne Brooks Sure, here are the details:

It was gifted to me Aug 2012, so I've lived in it for nearly 2 years, but also lived it in for a few months prior to the date the deed was recorded. It's been my primary residence for about two years.

The parent who gifted it to me had originally purchased it in 1982 for

68,500. According to Zillow it's now worth about 940,000.

Potentially either, I suppose. Active requires a certain number of hours spent managing the property per year, right? It would all depend on the potential rate of returns.

The second question is what kind of return per year cash on cash pre-tax would you consider acceptable on your money??

What could I expect? ;) If it is around 7-8% then I might be more inclined to stash all or some of it in equities vs. real estate, since I know very little about RE. Then again, I would prefer to have income generating investments.

My situation is pretty flexible which is why I'm trying to learn as much as possible.

Hi everyone,

I am trying to figure out my best option for a house that was gifted to me while my parent was still alive. It was mentioned to me in a previous thread that I could pay 0% capital gains if my income the year I sell the house is in the bottom two tax brackets. Is this correct? Wouldn't the gain on the house be considered in my income, therefore pushing me into a much higher bracket?

The original thread is here:

http://www.biggerpockets.com/forums/12/topics/128749-calculating-capital-gains-on-sale-of-gifted-house.

I'm trying to understand when the 0% scenario is applicable and have been having trouble finding additional information.

Thank you!