If you own two homes and you want to sell one of them. When I should sell the one that I am not living in it?

Question

I own two homes: one I live in it, and the second I am renting it. My question is when I should sell the second house that I am renting it now to avoid the sharing gain with uncle Sam ?

I appreciate your response.

Answer 1

Was that house ever your principal residence in the last 5 years, for 2 years or more? You get a huge tax savings if it was. You really need to talk to either a good real estate person or an attorney/CPA and find out the tax consequences. If it was your principal residence, you do not pay capital gains on the profit you make on the house. If it wasn't your principal residence for 2 of the last 5 years, you do have to pay profit on the sale. It can be complicated, you need advice from someone in your area, not a bunch of strangers off the internet. Good luck!

Answer 2

If the rental home was your primary residence for 2 of the past 5 years, then you will only have to share part of the gain. If the rental was always a rental, then you will have to share the gain with our Uncle.

Answer 3

I THINK legally there is no way to avoid paying the capital gains tax. The 1031 exchange is actually a tax deferred method. You essentially do a trade up and the taxes aren't due, just as long as you don't cash out. BUT, TALK TO A TAX PROFESSIONAL, I AM NOT AN EXPERT IN TAXATION. .

Answer 4

I think what most entrepreneurs do is instead of selling the rental property, they take out a loan and buy another house and then deduct the interest from the loan from their taxes while they use the money from the rental to pay off the loan. Then they repeat the process over and over.

Answer 5

Both people gave you excellent advice. To add to it, you might want to look into a 1031 exchange as well.