Captial Gains
I purchased a brand new home 9 months ago. It has increased in value approximately $45,000-$50, 000. I plan to sell and harvest the equity to start buying investment properties for rental purposes. What are my tax implications? Any suggestions on how to lower my tax implication or am I exempt? Thanks to everyone that has advise.
What have you been using the home for? Do you live in it? Do you rent it? If it is rental property, I would hold it for at least three more months, then sell it and do a 1031 exchange into other rental properties so that you can defer your capital gain taxes altogether.
[addsig]
wexeter: The home is a primary residence. Thanks for your help.
loafie6,
If you sell the property, where will you live?
Wouldn't it make more sense to refinance your primary residence to cash out some of your equity; then, reinvest in all the rental property you can afford.
You get cash for your equity, you don't have to wait for a buyer who is willing to offer the right price, you still have a place to live, and you preserve your opportunity to sell your primary residence at a later date and keep your profits tax free.
IRS code 121 will protect you. Your gains aren't that great. The code states that if you have lived in the residence for 2 of the last 5 years your eligible for 250k tax free, 500k if your married and file jointly. I'd just refi and pull out the 45k and then rent the place out. Take the 45k and find another place for yourself.
jripeastwest,
I think you missed the part of loafie6's original post which said he has only owned the property for nine months. If he sells now, he is not eligible for the capital gains exclusion under Section 121.
If he insists on selling, he would lessen his tax bite by holding the property for at least three more months before the sale. The long term capital gains tax rate is less than the short term rate.
Loafie6--FL-------------------
Why such a hurry? My suggestion: just continue to live there if you like the place. Otherwise wait for two years and sell with no tax on the first $250K/person of capital gain.
If you stay there, wait until you have lived there at least a year and then get a new first or second loan, either conventonal or line of credit, to tap into your equity for investment purposes. In the meanwhile, continue to study about real estate investing and forumlate a good program of investing that fits you and will work where you want to invest. This is especially important if you have not been studying real estate investing for at least a year. It takes a while to make sense of all of it. It is not as easy as the late-night TV infomercials would have you believe.
Good Investing*********Ron Starr*********
Loafie6--FL-------------------
Why such a hurry? My suggestion: just continue to live there if you like the place. Otherwise wait for two years and sell with no tax on the first $250K/person of capital gain.
If you stay there, wait until you have lived there at least a year and then get a new first or second loan, either conventonal or line of credit, to tap into your equity for investment purposes. In the meanwhile, continue to study about real estate investing and forumlate a good program of investing that fits you and will work where you want to invest. This is especially important if you have not been studying real estate investing for at least a year. It takes a while to make sense of all of it. It is not as easy as the late-night TV infomercials would have you believe.
Good Investing*********Ron Starr*********
Thanks to all for your thoughts. I have a lined up a condo for my private residence. The condo will be half the monetary responsibility of my current residence.
The rush..... I don't like working for "Corporate America" I see more opportunity outside in the real world. I am in the process of positioning myseld to "Walk away from the Man."
Also, I haven't been watching "Lat night infomerchials." I happen to be an accoutant with a degree in Finance. I have been reading real estate books for approximately a year now and I feel confident and ready to make this change. I originally purchased the home for an investment.
I just though I would enquire with and ask advice of seasoned indiviuals. No offense to anyone, I just wanted to explain myseld and situation.
Thank you all for your time, but It appears I will be paying some heavy taxes as I am currently scheduling a closing date for the sale.
When you "Walk away from the man" Don't forget to stick it to him too! Good luck!
These questions are best addressed in the Legal Forum.
My accountant suggested an LLC in the property state to avoid state taxes in two states.