Posted by Rebecca on May 17, 2002 at 11:06:50:
So in this scenario: I can rent my house back out (to establish as a rental which it was 3 of last 5 yrs, do a 1031 and buy, say, a duplex to rent out – would avoid cap gains? (And rent a place of my own…). thanks for your feedback! OOO MORE OPINIONS PLEASE
SELL, REFI, OR LSE W/OPTION?? - Posted by Rebecca
Posted by Rebecca on May 17, 2002 at 08:13:21:
I’m stuck w/too many possibilities! Moved back into rental house, it’s still appreciating. Would have to pay cap gains as mortg almost paid off, w/sell over 300k, so much equity! I understand if I refinance or get a new loan I nd to spend it on improvemts to reduce cap gains (?)which I dont want to do. The rental market here is also excellent (DC) & I’m tempted to pay off existing principal which I can do & enjoy the monthly income (I’ve been an absentee landlord before) but what if the real estate bubble bursts. I want to move, want income, want hold on to house a little longer, but want sell in 1-2 yrs. . WHAT WOULD A SAVVY PERSON DO??? Advice or ideas appreciated!
Re: SELL, REFI, OR LSE W/OPTION?? - Posted by Jim Kennedy - Houston, TX
Posted by Jim Kennedy - Houston, TX on May 18, 2002 at 13:59:08:
Rebecca,
Let me start by making some standard disclaimers. I’m not an attorney, an accountant, nor an expert on IRC §1031, IRC §1034, or IRC §121. However, I’m of the opinion that Tom Sullivan is correct. If you want to sell and get out of the landlording business, you may not have to pay capital gains tax, if indeed the property was your person residence for two of the last five years.
I’m also of the opinion that if you want to continue to receive the benefits of cash flow, that can also be accomplished. I believe you’re correct in that if you convert the property BACK to a rental, then you can do a 1031 exchange. Mike Daly was right in his first post to you when he indicated that you can ‘trade’ up to an apartment building. I think he clouded the issue with his ‘correction’ post.
Here’s an excerpt from one of the 1031 web sites listed below:
What qualifies for a 1031 Exhange?
QUALIFIED PROPERTIES
The classification of properties exchanged determines if the property qualifies for Section 1031 treatment.
A. The IRS’s 4 classifications of Real Estate:
The last two qualify for Section 1031 tax deferral, the first two do not. Both the property received and the property sold must be of “Like Kind”. It is your use of the property that determines its classification. What the other party does with the property does not affect your tax status.
Many people are of the opinion that the “like kind” requirement of §1031 means that you can only exchange a single family rental for more single family rentals or that you can only exchange an apartment building for another apartment building. This is just not so. You can exchange a single family rental for a commercial office building if you wanted to. They must, however, be in the same classification of property as defined by the IRS.
Should you decide to convert your house back to a rental in order to qualify for a 1031 exchange, you should consult with someone qualified to advise on this subject. I’m thinking specifically that there MAY be an issue regarding how long the property must be held as a rental before it would again be considered “investment property”.
Here are some web sites you might find useful to learn more about §1031 of the IRC:
http://www.realtyexchangers.com/
Hope this helps.
BTW, I almost missed your post because I rarely visit this newsgroup since it’s supposed to be for discussions about Carleton Sheets and other infomercial gurus. I spent most of my “net surfing” time on the main newsgroup where topics such as yours get discussed. You might want to repost at
http://www.creonline.com/wwwboard/index.html
or also at:
http://www.creonline.com/commercial-real-estate/wwwboard5/index.html
where the real 1031 experts hang out.
Best of Success!!
Jim Kennedy,
Houston, TX
Wait a minute… - Posted by Tom Sullivan
Posted by Tom Sullivan on May 17, 2002 at 17:57:26:
Rebecca, if I understand you correctly, this house was a rental 3 of the last 5 years. Was it your primary residence the other 2 years? If so, you may not have to worry about capital gains.
According to the IRS (please note, I’m not an accountant, so check with yours): If you lived in the house 2 of the last 5 years you can exclude capital gains of 250,000 (500,000 for married couples filing jointly).
About the gain, that refers to the selling price MINUS your cost basis (i.e. the price you bought it at plus any capital improvements).
So, the way I read that is that if you bought it for 100,000, did 25,000 worth of improvements and sold it for 300,000, your gain would be 175,000 (300k-100k-25k) and if you lived in it for 2 of the last 5 years, you wouldn’t owe any taxes.
Again, check with your accountant/tax advisor.
HTH…Tom
Correction… - Posted by Mike Daly (GA)
Posted by Mike Daly (GA) on May 17, 2002 at 09:08:16:
Actually, you probably wouldn’t be able to buy an apartment building, because the way 1031 exchange works you must buy the same “type” of property you’re exchanging. You could buy multiple properties though.
Re: SELL, REFI, OR LSE W/OPTION?? - Posted by Mike Daly (GA)
Posted by Mike Daly (GA) on May 17, 2002 at 09:06:41:
If you want to avoid paying taxes you can do a 1031 exchange – this way you can sell and use your equity to buy a larger property, like an apartment building, without paying taxes. The taxes would then be deferred until you sold this 2nd property, unless you did a 1031 exchange on that one as well…and so on…
Re: SELL, REFI, OR LSE W/OPTION?? - Posted by rebecca
Posted by rebecca on May 18, 2002 at 23:55:19:
Jim, thanks for all the information! Much appreciate your many good points. I’ll look thru the sites to clear up the cloudy areas (such as like-kind: I have a SFH & want to buy a condo(s), ugh). Ill switch to the other news group too. The taxable gain over 250k is about 80k & I’d like to do what I need to, to decrease this.