All Forum Posts by: James Park

@Ryan Esslinger,

I am real estate broker married to a CPA so hopefully i can shed some light. From an education level, I don't think you can really compare a real estate agent with a CPA. You don't need a college degree to become a real estate agent and the course work and examination is minimal to become one. As a CPA, you need to have an undergraduate degree in accounting and at least one year of masters level coursework to take four sections of the CPA exam totaling 15 hours. As much i thought my 5 hour California broker exam was some work, it does not compare to the rigor of passing the CPA exam.

In the north Atlanta area, I do see a great void of CPAs who specialize working with investors and have great in depth knowledge in real estate taxes. Whether you are a CPA or not, I think it is very important for serious investors to try to understand and study as much as they can about real estate taxes. I personally find this knowledge to be extremely valuable.

My wife and I are wired very differently. She is extremely book smart, analytical. She graduated from a top accounting program, and worked in tax for one of the big 4 accounting firms before we had kids. She would do very well in a corporate environment, but I don't think she would do very well in an entrepreneurial environment. I could never picture my wife working as a real estate agent :) On the other hand, I wouldn't last 3 weeks working in any W2 corporate environment as I would be absolutely miserable. 

I joke around telling my wife that she is my insurance policy if we ever see another real estate melt down like 2007 - 2009. CPA jobs are high in demand in the area I live and having a CPA license will make you easily employable earning a nice salary with benefits. As you know as a real estate agent you make a living on 100% commission and everyday you wake up, you are essentially unemployeed.  So my advice to you is to pursue both your CPA and your broker license. 

-James  

@David Cohen,

It is rough out here working the buy side in the north Atlanta market as well. Just lost 3 deals where I would have an offer in within 3 hours of listing. Multiple offers above asking prices starting to become the norm around here in the 10/10/10 school zones on the day of the listing. This is the current environment we are facing in South Forsyth.

It is time to get creative.  

Here is the appreciation data I pulled from Case Shiller comparing Los Angeles metro, Atlanta metro, and Chicago metro. Atlanta's market appreciated 5.2% from January 1st, 2014 to Dec 31st, 2015. Prices are starting to move higher in the North Atlanta Market with multiple offers on a decent properties in North Fulton, North Gwinnett, South Forsyth County.

@Brandon Hall

Thank you for your reply. 

I did find the IRS publication on my question.

Determine whether you meet the residence requirement. If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period. It doesn't even have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.

http://www.irs.gov/publications/p523/ar02.html

Steve,

I understand that if the home was used prior as your primary residence in the last 5 years you are tax exempt on any capital gains up to $500,000 if filed jointly. The part I am unsure of is if you would get the primary residence tax exemption if you have taken depreciation on the home during the time you held it as a rental. Will you will be tax exempt from your sale price - cost basis?

Here is a scenario:

Bob and his wife lived in a home as a their primary residence in TN from 2005 -2012. They converted their primary residence into a rental from June of 2012 and started to take depreciation on the home 1/2 the year from 2015.

If they purchased the home in 2005 for $300,000 and took a depreciation of $20,000, their basis on the property is now $280,000. Bob, sells his property to his tenant for $320,000. Will Bob be tax exempt from the sale price of $320,000 - basis cost of $280,000 since this home was used as their primary residence from 2005 - 2012, within the last 5 years?

I am starting to understand the tax implications of depreciation on my real estate investments. I am now changing my strategy to plan to hold onto my Atlanta real estate investments for 20+ years, otherwise to 1031 exchange to better, newer, and profitable investments. The depreciation the IRS gives you to off set your income on schedule E is not free money, but an amount that you will eventually have to  pay back once you sell your property, unless you 1031 exchange. If you own a $500,000 rental property and hold it for 27.5 years until you can no longer depreciate the home and sell the home for a million dollars. You would basically have to pay capital gains tax on that entire 1,000,000. Now, that is some serious coin.

I wanted open this questions to @Brandon Hall or other BP investors who have experience with 1031 exchange.

Suppose that i have a property in Chicago that i purchased for $400,000. Over the years, I have taken a depreciation to offset my income on schedule E of $25,000.  I sell this home for the same price I purchased it, I would then have a basis of $375,000. I would guess that I would then have a tax liability of $3750 (25,000 * .15 capital gains tax). Let's say that after my closing costs, fees, and mortgage I net $100,000 from the sale of my Chicago. 

Here are my questions:

1) If I reside in GA, will I have any tax implications with the state of IL?   

2) If i identify a investment property in GA and I use the entire $100,000 proceeds from my Chicago property and additional funds to buy the property with cash, would this be a transaction I can defer my taxes.

3) With a small capital gains tax of $3750, would a 1031 exchange be advisable?

One important information I would like to add is that this was a primary residence that turned in a rent in the summer of 2011.

Thanks.

James

I have attached an ad on what new construction homes were selling at in Orange County back in 1966. This particular ad for new homes sales Yorba Linda, CA. Can you believe how cheap homes prices were back then?

I believe HGTV Flippers, Tarek and Christina resides in Yorba Linda.