Best Time To Sell For Tax Advantage
I purchased a townhouse in 1986, then turned it into rental property after leaving the area in 1995. It should be paid off in 2008. It has increased in value by approx 40,000 and I owe to date about 28,000. I am interested in the best tax advantage - is there a better time to sell with the capital gain tax changes, are these gain % going back up after a certain date.....should i sell before the 15 year depreciation ends (since I've owned it for 15 years people are also sending me info. on "like-kind exchanges"
. If I do keep it after it's paid off could I borrow against it to purchase or pay off some land I also purchased (I've been told you can't borrow against rental property).....I'm not interested in selling right now, but I also don't want to pay more capital gain tax than necessary, if the date is a factor........Getting conflicting advice. Anyone have any ideas?[ Edited by jmtm on Date 08/06/2003 ]
you CAN borrow against a rental property.
Best time to sell (assuming you're not doing a 1031 exchange).....
1. 2008: No cap. gains tax if you fall within a certain tax bracket. (still getting this one figured out myself.)
2. Live in it for 2 years and then sell it as a primary residence.
Quote:1. 2008: No cap. gains tax if you fall within a certain tax bracket. (still getting this one figured out myself.)Only if your ordinary income tax bracket is 15% or less in 2008, will your capital gains tax drop from 5% to ZERO for the entire year. On January 1, 2009, the former 10% rate is reinstated. Depreciation recapture remains unchanged at 25%.
, the depreciation schedule for rental real estate was 27.5 years. Since you have been depreciating on a 15 year schedule (instead of 27.5 years), "unallowed" depreciation is recaptured at your ordinary income tax rate (as high as 35% this year).
If your tax bracket is 25%, or higher, the long term capital gains tax rate is 15% until December 31, 2008. In January 2009, the 15% rate increases to 20%.
Quote:2. Live in it for 2 years and then sell it as a primary residence.Depreciation will still be recaptured at 25%, though the capital gains exclusion will come back into play for the profit due to appreciation.
Quote:Should i sell before the 15 year depreciation endsIn 1995, when you placed your rental property into service ("turned it into rental property after leaving the area in 1995"
You may wish to consult a professional tax advisor for specific details.
Thanks for the info...I live too far away to move back in for 2 years.....it seems like a lot may go up for sale in 2008...do you think they will extend it? You've got me thinking about the depreciation years....I hope I am using a 27.5 year schedule...I'll have to double check my return....I was just thinking 15 years after receiving a letter from a real estate agent hawking "like-kind exchanges". They suggested it was time for sell, since it had been 15 years and it had been fully depreciated. I'm not sure what they were thinking....I sure hope I've been using the correct schedule.
As you suggested, I wish I could find 2 tax professionals that agree. My bother-in-law is a cpa, the cpa for the company I work and the person who actually does my taxes all have different opinions and views as what's best and how it can be done.....just thought I'd get a fourth....It's scary....A flat tax sounds good to me....thanks again.
Sounds like typical real estate agent marketing tactics. Messages like:
"Your investment property is fully depreciated!! Your depreciation recapture and capital gains taxes on the sale can be avoided only if you do a 1031 tax deferred exchange."
just create urgency to sell, possibly where none existed before, possibly where none needs to exist.
What compelling reason do you have to sell? Is there a better place for your money right now? Is your rental property a marginal or negative cash flow producer?Are you in a long distance management situation and the only property management company in town just went out of business?If you have no compelling reason to sell, why not just keep collecting your positive cash flow? If you need cash for your equity, you could always do a cash out refinance.[ Edited by DaveT on Date 08/08/2003 ]