selling duplex tax question - Posted by carmen

Real Estate Investing Duplexes
1

Posted by dealmaker on July 19, 2005 at 06:48:44:

“I have thought about doing a note…”

Borrowing against your equity DOES NOT affect your taxes! If it did EVERYONE would just borrow up to the full equity before selling.

Let’s take a reasonable look at your tax situation.

How much is your GAIN?
How much of that gain is attributable to the rental 1/2 of the unit? Are they the same square footage? Same amenities?
How much have you put into the rental size in CAPITAL IMPROVEMENTS?
How much do you expect your selling expenses to be?
Have you owned the place more than ONE YEAR?

Your taxes will be

Selling price minus the
Cost minus the
Capital improvements minus the
Fix-up expenses minus the
Selling expeses equals the

Total gain then apportion that to each side of the property.

You’ll owe 15% (to the feds) of the part for the rental. You’ll also have to recapture the depreciation which I haven’t put into this formula. If your state has an income tax you’ll also owe something to them based on their formula.

LOTS of people dread paying the tax, but then when they actually calculate it out they see it isn’t that bad. Also if you’re not presently working your total income will be down for the year so it might not hurt too much.

Could be worse, what if you were losing money instead of making money?

Good luck

Dealmaker

2

selling duplex tax question - Posted by carmen

Posted by carmen on July 18, 2005 at 21:16:35:

Any ideas on how to avoid the 1/2 taxes and other dep taxes on owner occupied property. I would entertaint an exchange but am moving without a job (that could change) and prices are much much higher where Im going too dont know if if could afford a house in that area with a big down and a job. Any ideas on avoiding the taxes…I have thought of doing a note not really big on the idea but would like more info and anyother ideas.

3

Re: selling duplex tax question - Posted by Randy (SD)

Posted by Randy (SD) on July 19, 2005 at 08:31:17:

Selling on a Note does not reduce or eliminate the tax liability it only differs it, you still pay capitol gains in the years following the sale as payments are received. Don?t forget if you continue to invest you create new deductions like ?home office expenses, auto, cost of sale, depreciation on new purchases etc.? Check out this link at IRS.gov on ?installment sales? http://www.irs.gov/publications/p537/ar01.html

You can never avoid paying taxes; (at least not legally) it?s the cost of making a profit. The best you can hope to do is defer the tax liability until it can be mitigated by other legitimate deductions.