What to expect tax wise on this sale?

Question

Purchase Price = $126,500
Sell Price = $185,000

Don't think it matters for this, but Debt currently on it = $126,700 (purchased with 103% loan).

Owned for 25 months
I was told an Excise tax in the area of $3500.

Can I use half the cash from this sale as a down payment on the next place and pocket the rest? If I do, how does this change taxes paid..if at all?

thanks,

Frank Adams · Answer

OK, first things first. Forget about any costs associated with the financing, any gain is always calculated on a "cash on cash" basis.

Second thing and this is VERY DOGGONE IMPORTANT. Was this your PRIMARY RESIDENCE, or was the property held for investment? Without knowing that we can't answer, but here's the short version. If it was your residence for 24 or the last 50 months you don't pay ANY TAXES on the gain up to $250K-single, $500K-married filing jointly.

If it was investment property you take the sales price

$185K, minus the cost
$126K which equals

$49K, minus any selling expenses like sales commission, legal fees title policy etc, etc to arrive at your NET PROFIT. Based on your nimbers on average in the US your NET PROFIT, would be in the $38K. On the $38K you would owe 15%, or about $5,700.

Going into a 1031 exchange lets you postpone the taxes for a long time, but unless you want to stay in REI it may just be better to pay the tax and go on with your life.

Answer about the purpose of the property, investment or primary residence and we can go further.

all cash

Dustin T · Answer

we are onlyjust now entering the market, so that house hasn't sold yet, thats a prospective number, i want to know exactly what to expect when selling and purchasing the next place so there are no ugly surprises.

I'm somewhat familiar with the 1031 program. But doesn't it require that I reinvest all the funds from the sale of the first investment into the purchase of the next?

the house i'm selling is a primary residence. does this give any bearing to the capital gains  law?  I'm not totally familiar with how it works.

guess i could have provided more info in the first post...sorry  :goofy:

Dustin

Dustin T · Answer

i think we can probably wait that long, we shall see...

Dustin T · Answer

we are really close, it's somewhat comical actually. we've owned it for about 25 months, and rented it out for about 6 months right smack in the dab. lived in the the rest of the time.

thanks for the feedback folks.

Dustin T · Answer

should i expect to pay an hourly fee for their time? what is it typically?

Jason Barnett · Answer

If you haven't already sold the house (i.e. if you haven't signed legal papers that enforce the sale) then you need to speak with an experienced tax / legal Real Estate advisor.  Immediately!  You can do what is called a section 1031 exchange and defer all taxes indefinitely.

N/A N/A · Answer

Since it is your primary residence, you may be in luck.  If you have lived in it for at least 2 years of the last 5 years, you can sell it without paying any capital gains tax.  (The limit is $250,000 per person, or $500,000 for a married couple filing jointly).

N/A N/A · Answer

If you just live in it for 4 more months you will qualify for the exemption.  The 2 years does not have to be continuous.