Capital Gains question

[doublebase]

In the process of selling a house, this home was purchased 25 years ago for $160,000, lived in the house for the first ten years as my primary residence, then rented it for the past 15 years.

Question is, does the gains start at when I purchased the home or when I decided to rent it? When I started renting it out the home value was $310,000. Obviously this would offset some of my capital gain tax. Anyone know if the gains start from the very beginning or when I started renting it?

 

[goingplacesanddoingstuff]

The gains start when you purchased the house. Since you lived in the house for at least 2 years, I believe that exempts you from capital gains taxes.

Edit: You will owe full capital gains starting from when you purchased. You can only exempt the time you lived in a house if that time occurred within 5 years of the sale. If you took depreciation while renting it out, your capital gains will be higher.

 

[doublebase]

The gains start when you purchased the house. Since you lived in the house for at least 2 years, I believe that exempts you from capital gains taxes.

Edit: You will owe full capital gains starting from when you purchased. You can only exempt the time you lived in a house if that time occurred within 5 years of the sale. If you took depreciation while renting it out, your capital gains will be higher.

Ok, well that’s not good.

 

[ArrestMeRedZ]

Ok, well that’s not good.

As mentioned above, any depreciation is "recapture" taxed at ordinary income tax rates (not capital gains rates) up to a maximum of 25%.
You can escape the capital gains rates by doing a 1031 exchange. In this your sale net would have to go into a special account and you would have to buy replacement property. There are special rules attached to this involving like property, dollar limitations, timeline, etc.
The only other way to avoid capital gains is to die. Your inheritors get a stepped up basis to the value of the property at the time of your death, and owe nothing on the gains if they sell then. Or you can donate the property to an approved charity.

 

[JGmazda]

Boy.... nothing like the good ole' American tax code(s).

 

[supton]

Guessing 15% on $150k?

Capital Gains Tax on Home Sales and Real Estate - NerdWallet

If you sell a house you didn’t live in for at least two years or that isn't your primary residence, capital gains tax on real estate may apply.

www.nerdwallet.com

Will it be 0%, 10% or 15%?

Capital Gains Tax: What It Is, 2023-2024 Rates - NerdWallet

Long- or short-term capital gains tax rates can apply to assets or investments sold for a profit. The length of ownership before selling helps determine which tax rates apply.

www.nerdwallet.com

 

[doublebase]

Guessing 15% on $150k?

Capital Gains Tax on Home Sales and Real Estate - NerdWallet

If you sell a house you didn’t live in for at least two years or that isn't your primary residence, capital gains tax on real estate may apply.

www.nerdwallet.com

Will it be 0%, 10% or 15%?

Capital Gains Tax: What It Is, 2023-2024 Rates - NerdWallet

Long- or short-term capital gains tax rates can apply to assets or investments sold for a profit. The length of ownership before selling helps determine which tax rates apply.

www.nerdwallet.com

I’m now expecting to lose 30% between capital gains and depreciation recovery. Not good, kind of thinking I made a mistake selling this rental property.

I just grew tired of dealing with the BS of owning it, and the house needs a lot of work. It’s 30 years old with original kitchen, bathrooms, siding, window trim, chimney, etc. Every ounce of flooring in the house needs replacement, interior doors too.

But even with all this ^^^ I am questioning myself. I’ll need to invest the money from the sale wisely, and I will miss the monthly income. Hope I made the right decision.

 

[J Dubbs]

It's always hard to make the right decision, when the government has folks that are paid to do nothing but figure out better ways to get more of our money Reasonable isn't in their vocabulary

Makes me sick

 

[andrew_j]

tax accountant hopefully on board otherwise just ask yours (find one if you are using e filing DIY)

 

[supton]

I’m now expecting to lose 30% between capital gains and depreciation recovery. Not good, kind of thinking I made a mistake selling this rental property.

I just grew tired of dealing with the BS of owning it, and the house needs a lot of work. It’s 30 years old with original kitchen, bathrooms, siding, window trim, chimney, etc. Every ounce of flooring in the house needs replacement, interior doors too.

But even with all this ^^^ I am questioning myself. I’ll need to invest the money from the sale wisely, and I will miss the monthly income. Hope I made the right decision.

Still keeping 70% of the growth while simplifying your life. And getting rid of something in need of money.

Maybe drop the money into a 6 month CD while figuring out the tax bill and next step? or at least what you think you will owe.

 

[zzyzzx]

I’m now expecting to lose 30% between capital gains and depreciation recovery. Not good, kind of thinking I made a mistake selling this rental property.

I just grew tired of dealing with the BS of owning it, and the house needs a lot of work. It’s 30 years old with original kitchen, bathrooms, siding, window trim, chimney, etc. Every ounce of flooring in the house needs replacement, interior doors too.

But even with all this ^^^ I am questioning myself. I’ll need to invest the money from the sale wisely, and I will miss the monthly income. Hope I made the right decision.

Tbills are paying decent money now, and you don't have to deal with repairs or scummy renters.

 

[MSCH]

In the process of selling a house, this home was purchased 25 years ago for $160,000, lived in the house for the first ten years as my primary residence, then rented it for the past 15 years.

Question is, does the gains start at when I purchased the home or when I decided to rent it? When I started renting it out the home value was $310,000. Obviously this would offset some of my capital gain tax. Anyone know if the gains start from the very beginning or when I started renting it?

sometimes it is better to pay a professional than to go to the internet. I think this is one of those times.

 

[Vil_Riker]

Your basis is $160,000 less depreciation that you have taken. You will need to recapture the depreciation if you have taken it in the past. There are ways of avoiding the capital gains tax, check with a tax professional for your options.

 

[2005jettatdi]

Guessing 15% on $150k?

Capital Gains Tax on Home Sales and Real Estate - NerdWallet

If you sell a house you didn’t live in for at least two years or that isn't your primary residence, capital gains tax on real estate may apply.

www.nerdwallet.com

Will it be 0%, 10% or 15%?

Yes, although very unlikely any of it is 0%. As someone else pointed out, depreciation is recaptured at a higher rate. Also, alternative minimum tax probably comes into play, maybe taxable social security. Do not forget Net Investment Income Tax. You cannot answer the question without knowing OP's other income. Also, what state OP lives in can make a very big difference. OP does not even tell us the actual selling price, only that it was worth $ 310K 15 years ago. That was 2008, before or after the market crashed?

A 1031 exchange requires that it be set up before the sale closes although the replacement property can be identified after closing.

OP should consult a tax professional, which means a certified public accountant or an enrolled agent. Not a seasonal tax preparer and absolutely not Jackson Hewitt or Liberty Tax.

 

[doublebase]

Yes, although very unlikely any of it is 0%. As someone else pointed out, depreciation is recaptured at a higher rate. Also, alternative minimum tax probably comes into play, maybe taxable social security. Do not forget Net Investment Income Tax. You cannot answer the question without knowing OP's other income. Also, what state OP lives in can make a very big difference. OP does not even tell us the actual selling price, only that it was worth $ 310K 15 years ago. That was 2008, before or after the market crashed?

A 1031 exchange requires that it be set up before the sale closes although the replacement property can be identified after closing.

OP should consult a tax professional, which means a certified public accountant or an enrolled agent. Not a seasonal tax preparer and absolutely not Jackson Hewitt or Liberty Tax.

Thank you, I will be reaching out to a professional after the P+S agreement comes in.

House was purchased years ago for $160k, sold for $535K.

I didn’t take much deprecation when I rented it (not realizing that it didn’t matter, and it would get recovered when I sold it anyway). I’m hoping a tax professional can advise me to perhaps depreciate the asset fully when I do my taxes next year? I have done several thousand in improvements over the years, I’d like to be able to reduce something with that. But it’s a rental, don’t think I can now. I will hire someone.

 

[doublebase]

Still keeping 70% of the growth while simplifying your life. And getting rid of something in need of money.

Maybe drop the money into a 6 month CD while figuring out the tax bill and next step? or at least what you think you will owe.

Yes, if I can’t avoid capital gains and depreciation recovery, I was planning on dropping the money into a 6 month CD at 5%.

 

[Vil_Riker]

Let us know how it ends.

 

[2005jettatdi]

Thank you, I will be reaching out to a professional after the P+S agreement comes in.

House was purchased years ago for $160k, sold for $535K.

I didn’t take much deprecation when I rented it (not realizing that it didn’t matter, and it would get recovered when I sold it anyway). I’m hoping a tax professional can advise me to perhaps depreciate the asset fully when I do my taxes next year? I have done several thousand in improvements over the years, I’d like to be able to reduce something with that. But it’s a rental, don’t think I can now. I will hire someone.

You take purchase price, add ALL improvements and subtract depreciation allowed or allowable. If you did not take any depreciation, you still have to recapture it. However, IRC allows you to take the missing depreciation in the year of the sale. Depreciation does not apply to land, so if you took some depreciation you may be fine with regard to depreciation.

 

[JeffKeryk]

Congrats on the sale of your property and your wise investment. Ya done good!

 

[sloinker]

Count your blessings as wondering how to keep more of your money. Many folks don't have that aggravation. I will be looking at the tax code myself soon when I sell this place and move back to Washington from Wyoming. I believe there are exemptions available up to $500k for a married couple selling a primary residence being lived in for some minimum amount of years at time of sale.