Selling property, capital gains?

[346ci]

Waiting on a cpa to call me back but wanted to see if anyone has done this recently.

Might be selling some land in NC, looks like I'm going to get hit hard by the big guy due to capital gains tax.

What options do I have to lessen the 20% blow? Put all the $$ from the sale into escrow and buy another investment property?

 

[7.62willdo]

1031 exchange.

 

[vinniedelpino]

Waiting on a cpa to call me back but wanted to see if anyone has done this recently.

Might be selling some land in NC, looks like I'm going to get hit hard by the big guy due to capital gains tax.

What options do I have to lessen the 20% blow? Put all the $$ from the sale into escrow and buy another investment property?

CPA here.

7.62 nailed it.

Better get moving on that 1031 exchange though. You have 45 days from the sale to formally identify the new property(ies) you intend to acquire and another 135 days to close.

Buying new property won’t help you. Not in the short term, anyway. Commercial property is written off over 39 years and residential over 27.5, unless you get involved with cost seg studies. Land doesn’t offer any tax deduction whatsoever.

 

[DIBBS]

Kind of along these lines, but not really the same.

We are looking at selling our house and small acreage in town, and down sizing to a single level much smaller residence. The problem is locally/regionally, as in most places right now, not a lot is available on the real estate market, so meeting the 135 day timeframe may be tough.

Buying a lot and building... yikes cant even imagine the square footage cost on a new house..

Are there other avenues available besides the 1031 form (?), 45/135 day timeframes.

 

[vinniedelpino]

Kind of along these lines, but not really the same.

We are looking at selling our house and small acreage in town, and down sizing to a single level much smaller residence. The problem is locally/regionally, as in most places right now, not a lot is available on the real estate market, so meeting the 135 day timeframe may be tough.

Buying a lot and building... yikes cant even imagine the square footage cost on a new house..

Are there other avenues available besides the 1031 form (?), 45/135 day timeframes.

If the property you're selling is your primary residence and you've lived in it for two of the last five years the section 121 exclusion applies and you won't pay any tax on the gains.

https://www.irs.gov/taxtopics/tc701

If not, just PM me and I'll try to give you a rough idea of your options.

 

[Maggot]

Kind of along these lines, but not really the same.

We are looking at selling our house and small acreage in town, and down sizing to a single level much smaller residence. The problem is locally/regionally, as in most places right now, not a lot is available on the real estate market, so meeting the 135 day timeframe may be tough.

Buying a lot and building... yikes cant even imagine the square footage cost on a new house..

Are there other avenues available besides the 1031 form (?), 45/135 day timeframes.

ABout $225-250 p/sq/foot I hear. I was lucky, put a 200 ft sq addition on my home just before Chink Flu hit for right at $100 sq/ft, but did the labor myself.

 

[Maggot]

If the property you're selling is your primary residence and you've lived in it for two of the last five years the section 121 exclusion applies and you won't pay any tax on the gains.

https://www.irs.gov/taxtopics/tc701

If not, just PM me and I'll try to give you a rough idea of your options.

Thats limited to the first $250K or cap gains, isnt it?

 

[acudaowner]

funny republicans sell things and worry about the many many different taxes on that money all awhile the democratic politicians and the blm make hundreds of millions of dollars all without paying a dime in taxes .

 

[vinniedelpino]

Thats limited to the first $250K or cap gains, isnt it?

$250k single, $500k married-joint

 

[Im2bent]

I thought capitol gains don't kick in till 750k?

 

[vinniedelpino]

I thought capitol gains don't kick in till 750k?

I wish

 

[Im2bent]

I got that from an attorney that was putting my parents home in a trust.

 

[Stevebouf328]

I’m in the same exact position, I’ll be closing on land in about a month. I can’t find anything I want to 1031 exchange into.

I was hoping there’s a way to 1031 into my primary residence somehow.

 

[hollowoutadime]

I got that from an attorney that was putting my parents home in a trust.

That 500K is net profit, so subtract purchase price and realtor's fees. (also I believe additions cap improvements - but not routine upkeep)

 

[Trophy Case]

I just sold our rental duplex that had a VERY nice increase in value over a short 3 year period. Colorado real estate is insane right now!! I decided to cash out and take the capitol gains tax hit at about 18 percent and almost get my primary residence paid off. My tax professional said next year president potato head is going to raise the tax even more.
Sold it to a friends kid trying to get a decent starter home so we cut out the realtor completely, gave him a good deal...everyone was happy!!
The rental industry makes me nervous when our government allows people to remain in their rental lease without paying. Yes it was the covid BS but damn, I still have to pay the mortgage.
Had a couple acquaintances get burned by this heavy handed government mandate.
I’m out and don’t regret it at all.

 

[vinniedelpino]

I’m in the same exact position, I’ll be closing on land in about a month. I can’t find anything I want to 1031 exchange into.

I was hoping there’s a way to 1031 into my primary residence somehow.

There is... but it requires that you take an investment property, sell it by way of a 1031 exchange, roll the proceeds into a new investment (i.e., rental) property, rent it out for two years, then convert it to your primary residence.

1031 into primary

 

[Stevebouf328]

There is... but it requires that you take an investment property, sell it by way of a 1031 exchange, roll the proceeds into a new investment (i.e., rental) property, rent it out for two years, then convert it to your primary residence.

1031 into primary

IM talking a home I already own, I may just have to pay up.

 

[vinniedelpino]

IM talking a home I already own, I may just have to pay up.

It can be done, but you need to rent it out first.

 

[Stevebouf328]

It can be done, but you need to rent it out first.

So if I move out and rent it, it’s possible. That’s interesting. What if I decide to sell it in the future, will I be taxed on the whole profit? It’s complexed. Unless I move back in for 2 years. Lol

 

[vinniedelpino]

So if I move out and rent it, it’s possible. That’s interesting. What if I decide to sell it in the future, will I be taxed on the whole profit? It’s complexed. Unless I move back in for 2 years. Lol

It can get a little complicated, and timing is critical, but you can actually utilize both the 121 exclusion and the 1031 exchange together.

For example, you move out, rent the property for two years, sell it via a 1031 exchange and pick up the 121 exclusion (to avoid up to $250k/$500k in cap gains altogether, depending on filing status) and defer the remainder of your gain until you sell the newly acquired property.

That one's going to require that you meet with your tax guy though. There are some mildly complicated calculations that need to be made.

 

[Stevebouf328]

There is... but it requires that you take an investment property, sell it by way of a 1031 exchange, roll the proceeds into a new investment (i.e., rental) property, rent it out for two years, then convert it to your primary residence.

1031 into primary

Thank you I didn’t notice the link, I’m definitely going to talk with a attorney about this.

 

[7.62willdo]

FIRST WORLD PROBLEMS……..

 

[hlee]

FIRST WORLD PROBLEMS……..

Even Rwanda has an income tax...

 

[Maggot]

Even Rwanda has an income tax...

But no one has much income. They own nothing and dont like it.

 

[Waorani]

Gotta pick up the slack for the 60% of Americans that pay no income tax. You'd think they'd at least come cut your grass every once in a while!

 

[Maggot]

Gotta pick up the slack for the 60% of Americans that pay no income tax. You'd think they'd at least come cut your grass every once in a while!

 

[Waorani]

Pretty safe bet there are more poor white folks not paying any income taxes than minorities.

 

[Im2bent]

Pretty safe bet racism has to do with race and not population numbers

 

[fanninland]

Another option to consider, if buyer is willing, is for seller to carry the note. That way seller only recognizes the gain associated with the principal portion of the note payments in the tax year said note payments received. Instead of taking the cap gains tax hit in a single year, this spreads the capital gain tax that seller pays over the term of the loan. It also usually provides greater interest rate than what seller would get if he just stuck sale proceeds in a bank c.d. (Interest rate on note being greater than rate on c.d.)

Couple caveats on seller financing though - I usually only consider it if the property is unimproved (raw land) or the buyer is well vetted, otherwise the collateral is at greater risk of being devalued if the buyer neglects doing repairs/maintenance. And down the road should the tax laws change, i.e. cap gains tax rate increases or gov does away with cap gains rate altogether and taxes it as ordinary income, well that would really suck.

1031 is a great tool if you can line up a replacement property within the time constraints at a fair market price. What I don’t understand, and what I am seeing in the current hot real estate market in my area, is some buyers chasing deals and overpaying for property, sometimes in excess of 20%, just for the sake of completing their 1031. Sometimes it might make more sense to pay the cap gain tax as opposed to overpaying for a 1031 replacement property.