Selling a house from portfolio. How to determine capital gains?

Question

I am buying a real estate portfolio from another investor. The purchase agreement has only one price for the total portfolio. Now, if I decide to sell one of the properties in the future, how would I determine the capital gains to pay taxes? What is the purchasing price of one house within a portfolio? Should I take <portfolio price>/N, where N is the number of houses?

Natalie Kolodij · Answer

Your CPA will help you set up the depreciable basis and allocate a portion of purchase based on each house any way.

Once that set up is done there won't be any calculation issues moving forward. An appraisal of each property would help too.

Mark Allen · Answer

@Tigran Kalaydzhyan

You’re going to have to allocate purchase price for each asset for tax purposes. Good conversation to have with a CPA who also invests in real estate. This PPA will be your basis, should you sell individual homes and have to pay capital gains and depreciation recapture.

Account Closed · Answer

@Tigran Kalaydzhyan

You should be getting cma’s or appraisals on each of the properties before you buy them. Even though you are paying one lump sum you still need to know what each property is worth individually. How else will you know if you are paying too much for the portfolio without cma’s or appraisals?

Tigran Kalaydzhyan · Answer

Can I do PPA using the tax assessed values? I didn't do the appraisals of the properties.

Tigran Kalaydzhyan · Answer

@Mark Allen

Thank you, PPA is a good idea. Do you know if I have to do that before/during/after the purchase?

Tigran Kalaydzhyan · Answer

@Mike Kirby

I am looking at the tax assessments and comps and see that the total purchase price is well below the sum of the approximate market prices (I'm buying it off the market). I'm not doing the appraisals, because I'm buying it for cash, no lender is involved. Even if I did, how is the appraisal related to the purchase price?

Selling a house from portfolio. How to determine capital gains?

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