Purchased investment property and will sell asap.?

Question

I purchased a home in an excellent area for $350,000. I have spent $85,000 for remodeling. The house will easily sell for $795,000. I plan to sell as soon as possible. What tax benefits would I gain in taking my time in selling versus selling immediately? Would the tax gains be worth my while to wait for the perfect buyer? Is there a timetable showing benefits of keeping investment real estate for a period of time versus selling immediately?

Answer 1

wow............
going to make this simple..

sell as soon as you want.

so you get your..remodel,taxes,legal,mortgage/loan payment, utilities, insurance, etc, etc..
so..........I got you at ap. $200 k..after all those expenses...
now capital gains..very bottom line is....take that number and go 1/2/
now hire a professional tax return and then if any mistakes are made they are responsible and not you (I am usually off not less than $1 when i do mine)... and you get to claim that as an expense.

so I got you down as $100k for income for taxes.................

there are more ways as well to reduce your income..as private pension plans, charity donations..political contribution ,etc...(least your deligating your income then)

p.s. because you will buy anothe property as well..to either fix and resell or for yourself............that is a write-off on taxable income as well..

Answer 2

It depends on what type of area you are in. If it is a high growth area and it will appreciate higher than $730 x 12=8,760 per year then it's still a good investment. However, if you find a higher yielding investment right away then I would sell. As you know rentals take a little while to start yielding positive cash flow unless you have a large downpayment. In NY where I'm from many landlords break even or even take a loss for a few years but the properties gain value over the years and they use the equity to finance other properties while raising the rents.

Answer 3

There is one tool I am aware of that will eliminate the capital gains on an investment property. It is called a Private Annuity Trust. It is very much like a 1031 exchange but instead of investing in another property, you are investing in an investment vehicle. It works well. Be aware however the government is trying to changing the rules on this type of vehicle because people sell a property, put it into a P.A.T. and then at their leisure, re-invest in real estate with no tax penalties. Another interesting tool is the REVERSE 1031. http://www.reverse1031.com/ You can take the proceeds from the sale of the property and without having to find a replacement property right away you can still avoid capital gains and find a replacement later. Do a search for this on the internet. Hope this helps.

Answer 4

Here's the biggest issue. If you can live in the house for at least 2 years, as your primary residence, you can then sell it and $250,000 of the profits will be tax free. If you are married and both live there, then $500,000 will be tax free.

If you just turn around and sell it, you will have to pay normal income tax on all the profits, after you've deducted all the expenses with buying, fixing it up, financing it, and selling it. Figure that's at least a $300,000 profit. You'd probably be paying over 30% on most of that profit.

Is it worth an extra $90K to you in tax savings to wait until 2 years after you bought it, to sell it?

Answer 5

Hold as long as you can some has to be left holding the bag.
http://www.breakingbubble.com/index.htm

Answer 6

You will be penalized for selling before 2 years. It would be in your best interest to speak with a accountant or professional who deals with this. You can always Google - Capital Gains Tax Calculator and get an idea of the hit you will take.

*Determining Tax Rates for Your Investments:

The total capital gains tax you pay is largely determined by the length of time an investment is held. Uncle Sam prefers rewarding long-term shareholders of American businesses. Although the individual tax rates are apt to change, the holding periods generally are not. It is absolutely vital that you realize the buy and sell date the government uses to determine the length of time you held the asset is the trade date (the day you ordered your broker to buy or sell the investment), not the settlement date (the day when the certificates changed hands).

Capital gains tax on assets held less than one year:

Appreciated assets sold for a gain after being held for less than a year receive the least favorable capital gains tax treatment.

Generally, the gain will be taxed at your personal income rate (which includes your earned income plus capital gains). In some cases, the capital gains tax can reach almost twice as high as those levied on long-term investments.

Capital gains tax on assets held more than one year but less than five years:

The Internal Revenue Service considers assets held longer than one year to be long-term investments. In recent years, the capital gains tax on these types of holdings has been 20%. If you are in the 15% tax bracket, however, you may be eligible for a lower rate. The substantial capital gains tax reduction for long-term investments is one of the reasons value investors tend to favor the buy and hold approach.

Capital gains tax on assets held for more than five years:

Assets purchased on or after January 1, 2001 that are held for five years or longer are subject to a reduced capital gains tax rate of 18%. Unfortunately, any investments purchased before this date are not eligible.

The ramifications of capital gain tax rates on your investment decisions:

The tax code clearly gives an advantage to those holding their investments for longer periods of time, making it easier for patient investors to build wealth. All investment performance must be reviewed net of taxes. To put things into perspective:
A woman in the 38.6% tax bracket invests $100,000 in a stock and sells it six months later for $160,000 (a 60% return). She owes $23,160 in taxes on her $60,000 capital gain, leaving her with a $36,840 profit.

The same woman invests $100,000 in a stock and sells it one year later for $50,000 (a 50% return). She owes capital gains taxes of $10,000, leaving her with a net profit of $40,000.

Despite the fact that her return was 10% lower in the second transaction, she ended up with 9.21% more money in her pocket. Capital gains tax implications should be a serious consideration for almost every investment.

*Capital Gains Taxes:

If you sold your main home and made a profit, you may be able to exclude that profit from your taxable income. Here's how it works.

$250,000 Exclusion on the Sale of a Main Home:

Individuals can exclude up to $250,000 in profit from the sale of a main home (or $500,000 for a married couple) as long as you have owned the home and lived in the home for a minimum of two years. Those two years do not need to be consecutive. In the 5 years prior to the sale of the house, you need to have lived in the house for at least 24 months in that 5-year period. In other words, the home must have been your principal residence.
You can use this 2-out-of-5 year rule to exclude your profits each time you sell or exchange your main home. Generally, you can claim the exclusion only once every two years.

Some exceptions do apply.

Exceptions to the 2 out of 5 Year Rule:
If you lived in your home less than 24 months, you may be able to exclude a portion of the gain. Exceptions are allowed if you sold your house because the location of your job changed, because of health concerns, or for some other unforeseen circumstance.

Change in the Location of Your Job:
If you lived in your house for less than two years, you can exclude a part of your gain on the sale of your house if your work location has changed. This exception would apply if you started a new job, or if you are moved to a new location with your employer.

Health Concerns:
If you are selling your house for medical or health reasons, be ready to document those reasons with a letter from your physician. Such a letter does not need to be filed with your tax return. Instead, keep the documentation in your personal records just in case the IRS wants further information.

Unforeseen Circumstances:
If you are selling your house because of unforeseen circumstances, be ready to document what those reasons are. IRS Publication 523 defines an unforeseen circumstance as "the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home." The IRS has given specific examples of unforeseen circumstances:
natural disasters,
acts of war,
acts of terrorism,
change in employment or unemployment that left you unable to meet basic living expenses,
death,
divorce,
separation, or
multiple births from the same pregnancy.

Partial Exclusion:
You can exclude a portion of your gain if you are selling your home and lived there less than 2 years and you meet one of the three exceptions. You calculate your partial exclusion based on the amount of time you actually lived in your home.
Count the number of months you actually lived in your home. Then divide that number by 24. Then multiply this ratio by $250,000 (if unmarried) or by $500,000 (if married). The result is the amount of gain you can exclude from your taxable income.

For example: you lived in your home for 12 months, and then sold the home because your employer asked you to relocate to a different office. You are an unmarried person. You calculate your partial exclusion: 12 months divided by 24 month (for a ratio of .50) times your maximum exclusion of $250,000. The result: you can exclude up to $125,000 in gain. If your gain is more than $125,000, you include only the amount over $125,000 as taxable income. If your gain is less than $125,000, then your gain can be excluded from your taxable income.


Loss on the Sale of a Home:
You cannot deduct a loss from the sale of your main home.

Reporting the Gain on the Sale of Your Home:
Gain on the sale of your home is reported on Schedule D as a capital gain. If you owned your home for one year or less, the gain is reported as a short-term capital gain. If your owned your home for more than one year, the gain is reported as a long-term capital gain.

Calculating Your Cost Basis and Capital Gain:
Just like calculating capital gains, the formula for calculating the gain or loss involves subtracting your cost basis from your selling price.
The formula for calculating your cost basis on your main home is as follows:


Purchase price:
+ Purchase costs (title & escrow fees, real estate agent commissions, etc.)
+ Improvements (replacing the roof, new furnace, etc.)
+ Selling costs (title & escrow fees, real estate agent commissions, etc.)
- Accumulated depreciation (for example, if you ever took the office in the home deduction)
= Cost Basis

And then calculating your profit or loss would be:

Selling price
- Cost Basis
= Gain or Loss
If the resulting number is positive, you made a profit when you sold your home. If the resulting number is negative, you incurred a loss.

Finally, calculate your taxable gain:

Gain - Maximum or Partial Exclusion
= Taxable Gain

Answer 7

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