Thankyou To All
thanks again to all that responded to what sometimes must have seemed like idiotic questions, but to my wife and i it meant the world. thankyou neill and davet and all the others from the bottom of our hearts.
in case you are interested we put our condo on the market saturday morning august 2 and were signing a contract that afternoon. so now its going to attorney review; with a closing in sept.
if you don't mind we have just a few more questions for all you savvy investors out there.
1) concerning capital gains, after reading another post by davet i found that we are in the lower tax bracket and will only pay 5% capital gains. now knowing this is capital gains something you file at tax time next april or is something separate that gets done now?
2) being as we collected rent for 6 1/2 months of this year do we depreciate 6 1/2 months and then use the depreciation recapture at 25% for those 6 1/2 months?
or will our tax accountant figure all this out?
3) because the closing is at the end of sept. do our utility bills and mortgage payments for parts of july,august, and september come off the final selling price to help offset capital gains?
we're wondering what besides our agent fees can we deduct? (ex. paint, cleaning materials, our labor)
4) and1 final question. on our current home we owe aprox 89000 and could easily pay it off with the profits from this sale. is this a good idea, again people say no because then we will have no interest to write off at tax time. i look at it like you're not paying interest in the first place with no mortgage, so why not. my wife seems to be leaning towards the the advice of those who say no, my question is which is best?
and if we don't pay off the mortgage but put a big chunk down on our current homes mortrgage would it make sense to invest it until next july or august being as we have a adjustable rate which changes september 1 and our closng is at the end of sept
thankyou again to all for your help
Quote:1) i found that we are in the lower tax bracket and will only pay 5% capital gains. now knowing this is capital gains something you file at tax time next april or is something separate that gets done nowReport the sale of your property and pay the tax when you file your annual tax return next April.
Quote:2) being as we collected rent for 6 1/2 months of this year do we depreciate 6 1/2 months and then use the depreciation recapture at 25% for those 6 1/2 months? or will our tax accountant figure all this out?The answer is yes to both questions. You are entitled to a depreciation expense to offset your rental income for this year. Remember that the "allowable" depreciation will be recaptured, so you should take advantage of the opportunity to offset your rental income for this year with your depreciation expense (dollar-for-dollar).
Quote:3) because the closing is at the end of sept. do our utility bills and mortgage payments for parts of july,august, and september come off the final selling price to help offset capital gains? we're wondering what besides our agent fees can we deduct? (ex. paint, cleaning materials, our labor)Unfortunately, for your situation all your utility bills for this period of time are personal expenses and not deductible.
The mortgage interest you paid after you took the property out of service as a rental, however, is deductible on Schedule A if you file an itemized return. While the property was in service as a rental, your mortgage interest is expensed on Schedule E.
Fix-up expenses are not deductible, even if required as a condition of sale. Painting, cleaning, minor repairs, etc. required to get the property ready for sale used to be added to the cost basis, but the 1997 tax code changes eliminated this. Your personal labor (time and sweat) have never been deductible.
Quote:4) on our current home we owe aprox 89000 and could easily pay it off with the profits from this sale. is this a good idea, again people say no because then we will have no interest to write off at tax time. i look at it like you're not paying interest in the first place with no mortgage, so why not. my wife seems to be leaning towards the the advice of those who say no, my question is which is best?There is no absolute answer to your question. If you are near retirement, planning to live on a fixed income and don't want the mortgage payment eating into your limited income, then payoff the mortgage.
If you have adequate cash resources for your planned future needs (medical expenses, school tuition, etc.) and well as unforseen events (loss of job, new baby, catastrophic loss not covered by insurance, etc.) AND you have no better place to invest your funds right now, then paydown your mortgage. But do it wisely. I suggest putting the money in an interest bearing account, then adding extra money to your monthly mortgage payment so you payoff your mortgage loan over a period of three to five years. When your mortgage is paid off, you will still have some cash left in your account, and at the same time you had an emergency fund just in case.
If you have no cash reserves of very little cash on hand, I suggest you put an amount equal to 12 months of your spendable income in a contingency fund. For example, if your combined take home pay is $60K per year, put $60K in an income producing, but liquid, investment (savings account, short term treasuries, CDs, etc.). If you have money left over, then use it to reduce your mortgage debt if you have no better yielding investment opportunity.
As far as the mortgage interest deduction is concerned, if you need the mortgage interest to qualify for itemized deductions you need to look closer at the standard deduction limits. Changes to the amount of the standard deduction may be more tax efficient for you if the standard deduction is considerably higher than your other deductions not due to mortgage interest. If so, this eliminates the tax advantage argument for not paying off your mortgage loan.
davet,
i don't know where they found you but you are a true gem.
thankyou so much; you have been a true guiding light in our time of need. thankyou again from the bottom of our hearts.
god bless
david & kim
ps we promise we'll try to not bother you with what probably seems like trivial stuff anymore. but in the future if we do need a little advice, we know where to come.
awesome site