Just sold a Rental Property. IRS is going to kill my gains help!!!
Member since 2020 · 22 posts · 10 votes
Just sold a Rental Property. IRS is going to kill my gains help!!!
Most Popular Reply
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
2yIt's too late to tell you this, but you need to think about your tax strategy before you sell, not after. You're going to owe what you owe; anything you do now is just after the fact that would apply to any tax situation.
Skyline Properties
29 Replies
- 2yJason WrayPro MemberBanker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
Talk to your CPA about doing a carryover but I would advise buying another investment property. The new property is the tax shelter that can take some of the burden off of your carry over year to absorb some deductions. Ultimately a 1031 would have been the smartest move to buy another property and simply do a cash out refinance in 6 months to have access to some of the funds.
- 2yBill HamptonBusiness MemberAccredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 978 votes
I recommend finding an accountant who specializes in real estate taxation, tax planning and financial planning.
You may want to consider working with your accountant remotely to expand your options.
I would also recommend looking for a accountant willing to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.
There are over 20 real estate accountants on this site. Reach out to a few and see who you like.
You can also ask members of your local real estate investors association for real estate accountant recommendations.
Good luck.
Hampton Tax and Financial Services LLC4.7106 Reviews - 2yJoshua ThompsonBusiness MemberAccountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
This is a tough one because your situation, income, risk tolerance all come into play when recommending other tax strategies. I would say figure out your long-term financial goals and determine the best course of action with this money. I've seen too many people try to force a tax deduction or strategy but end up putting themselves in a worse position by picking a strategy that doesn't align with their goals.
If you're done with real estate altogether there are a few recommendations. If not, can you take advantage of a syndication that plans to purchase a property by the end of the year and do a cost segregation?
If you're unsure, I would say put a minimum of 30% of the funds you received aside for taxes and use the rest to invest towards that goal you want.
If it helps set you at ease, none of our clients have ever been "killed" by the IRS, we haven't seen that dark side of them, yet. If I remember correctly your burial plot is one thing they cannot take from you, a most recent example being Nicholas Cage's plot in New Orleans. Haha Good luck!
Thompson Tax Group LLC550 Reviews - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes2y
It's too late to tell you this, but you need to think about your tax strategy before you sell, not after. You're going to owe what you owe; anything you do now is just after the fact that would apply to any tax situation.
Skyline Properties - Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes2y
- 2yMichael PlaksPro MemberTax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
For taxes: the first step is to pay an accountant specializing in real estate to estimate your tax hit. It may not be as large as you fear. No matter how much detail you share here on the forum, we will not be able to give you a reliable estimate because a lot of factors can change the result. We need to see your past tax return and ask you a bunch of questions.
For reinvesting your money: also cannot answer without having an extensive discussion one-on-one. It's like asking what the best food is. Everyone has their favorites, but it does not mean theirs work for you. For example, what if you have an allergy?
I know I did not provide any help here. I'm just cautioning you against taking any specific advice from any other online response.
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Quote from @Will Mejia:
I had 2 rental properties in Chicago (I dont live in neither). One of them became a nightmare so I sold it a few months ago. I sold it for way higher than I bought it. I have all this cash in hand and I feel IRS is going to take a big chunk from it.
I just did many repairs/improvements on the other property as write offs to help somewhat when I file next year. I'm also trying to max out my 401k contribution so I can have that as pre-tax money. These things though are minimal. I do not want to invest in another property.
Any ideas how I can reduce my 2024 taxable income?
Also my cash from the sale has been sitting in a 5% money market. Any ideas on where I could invest so I can at least make it work for me if I will inevitably be destroyed by taxes next year?? (would a brokerage account be a good idea?)
A few basic ideas that I think could help:
1. tax loss harvesting
2. Contribute to your IRA
3. Contribute to your HSA
If you are married, you can do 2 & 3 double. - 2yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
Before you look to see if there are ways to avoid paying the tax, you should have an idea of how much tax you will pay.
If the tax burden is small / zero, there may nothing that you have to do.
If the tax burden is large, then you may want to consider some strategies to decrease the tax burden.
Best of luck.
Basit Siddiqi CPA4.979 Reviews - 2yBenjamin WeinhartBusiness MemberAccountant · Cincinnati OH 45245, USA · Member since 2022 · 112 posts · 112 votes
Depending on how everything is set up, what you consider a max for retirement account contributions may only be the 20k limit whereas you can go up to ~$70k in total with other methods. It sounds like you should've talked to a CPA before the sale to help you do a little tax planning, but a bit late for that unfortunately. Also those improvements you did may only be able to be depreciated over time instead of all during this year depending on how much each one was and what they were.
As for the cash portion, keep it in savings for now, I always use 50% as a good conservative estimate when not knowing many factors about someone. That's 50% of the gain by the way, not the sales price. For the other portion, invest how you see fit really.
You can try accelerating some purchases that you would normally do next year to be this year, but there's not a ton outside of the normal stuff. (Don't buy stuff just for the sake of lowering your tax bill, it's not worth it)
Ice Accounting & CPA, LLC55 Reviews Quote from @Will Mejia:
I had 2 rental properties in Chicago (I dont live in neither). One of them became a nightmare so I sold it a few months ago. I sold it for way higher than I bought it. I have all this cash in hand and I feel IRS is going to take a big chunk from it.
I just did many repairs/improvements on the other property as write offs to help somewhat when I file next year. I'm also trying to max out my 401k contribution so I can have that as pre-tax money. These things though are minimal. I do not want to invest in another property.
Any ideas how I can reduce my 2024 taxable income?
Also my cash from the sale has been sitting in a 5% money market. Any ideas on where I could invest so I can at least make it work for me if I will inevitably be destroyed by taxes next year?? (would a brokerage account be a good idea?)
for Zero Risk to capital, move cash to your brokerage and buy USFR, paying 5.4%, must pay federal tax but no state taxes, it holds short term US treasury floating rate notes, no FDIC needed as FED can print more money to pay you off
for Mild Risk to capital, buy BKN, BlackRock municipal bond fund with 20% leverage, pays 5.5% tax free, and if 10 year bond yield falls 2% over next year, likely with rate cuts coming, then this will appreciate by about 15%
for Mild to Moderate Risk to capital, buy EDV, Vanguard 30year zero coupon US treasuries, pays about 4%, taxable and if 30year bond yield falls 2% over next year, likely with rate cuts coming, then this will appreciate by about 60%
Don't put into stocks if you need the cash in <3 to 5 years due to stock volatility
- Member since 2020 · 22 posts · 10 votes2y
Quote from @Joshua Thompson:
This is a tough one because your situation, income, risk tolerance all come into play when recommending other tax strategies. I would say figure out your long-term financial goals and determine the best course of action with this money. I've seen too many people try to force a tax deduction or strategy but end up putting themselves in a worse position by picking a strategy that doesn't align with their goals.
If you're done with real estate altogether there are a few recommendations. If not, can you take advantage of a syndication that plans to purchase a property by the end of the year and do a cost segregation?
If you're unsure, I would say put a minimum of 30% of the funds you received aside for taxes and use the rest to invest towards that goal you want.
If it helps set you at ease, none of our clients have ever been "killed" by the IRS, we haven't seen that dark side of them, yet. If I remember correctly your burial plot is one thing they cannot take from you, a most recent example being Nicholas Cage's plot in New Orleans. Haha Good luck!
lol. Thanks. Yes I'm done with R.E. Im thinking opening up a brokage account to invest in the stock market. I believe I can invest and then take out whatever I have to pay the IRS next year so at least it makes me some money before I part ways with it.
My long term goals are just to wealth build with my cash.
I dont plan on needing anything for another house, college, etc any time soon.
I may buy a car and travel but again I can take that out of the brokage account when I needed so at least it makes some money till then.
- Member since 2020 · 22 posts · 10 votes2y
Quote from @Michael Plaks:
For taxes: the first step is to pay an accountant specializing in real estate to estimate your tax hit. It may not be as large as you fear. No matter how much detail you share here on the forum, we will not be able to give you a reliable estimate because a lot of factors can change the result. We need to see your past tax return and ask you a bunch of questions.
For reinvesting your money: also cannot answer without having an extensive discussion one-on-one. It's like asking what the best food is. Everyone has their favorites, but it does not mean theirs work for you. For example, what if you have an allergy?
I know I did not provide any help here. I'm just cautioning you against taking any specific advice from any other online response.
Thank you so much. Yes I will be meeting with my Tax guy soon but I wanted to get different thoughts in the mean time just to see what ideas might be out there. - Member since 2020 · 22 posts · 10 votes2y
Quote from @Benjamin Weinhart:
Depending on how everything is set up, what you consider a max for retirement account contributions may only be the 20k limit whereas you can go up to ~$70k in total with other methods. It sounds like you should've talked to a CPA before the sale to help you do a little tax planning, but a bit late for that unfortunately. Also those improvements you did may only be able to be depreciated over time instead of all during this year depending on how much each one was and what they were.
As for the cash portion, keep it in savings for now, I always use 50% as a good conservative estimate when not knowing many factors about someone. That's 50% of the gain by the way, not the sales price. For the other portion, invest how you see fit really.
You can try accelerating some purchases that you would normally do next year to be this year, but there's not a ton outside of the normal stuff. (Don't buy stuff just for the sake of lowering your tax bill, it's not worth it)
HI Basit,
When you say "
You can try accelerating some purchases that you would normally do next
year to be this year, but there's not a ton outside of the normal stuff" you mean stuff for my remaining rental property right? Like a fridge etc? - Member since 2020 · 22 posts · 10 votes2y
Quote from @Paul Azad:
Quote from @Will Mejia:
I had 2 rental properties in Chicago (I dont live in neither). One of them became a nightmare so I sold it a few months ago. I sold it for way higher than I bought it. I have all this cash in hand and I feel IRS is going to take a big chunk from it.
I just did many repairs/improvements on the other property as write offs to help somewhat when I file next year. I'm also trying to max out my 401k contribution so I can have that as pre-tax money. These things though are minimal. I do not want to invest in another property.
Any ideas how I can reduce my 2024 taxable income?
Also my cash from the sale has been sitting in a 5% money market. Any ideas on where I could invest so I can at least make it work for me if I will inevitably be destroyed by taxes next year?? (would a brokerage account be a good idea?)
for Zero Risk to capital, move cash to your brokerage and buy USFR, paying 5.4%, must pay federal tax but no state taxes, it holds short term US treasury floating rate notes, no FDIC needed as FED can print more money to pay you off
for Mild Risk to capital, buy BKN, BlackRock municipal bond fund with 20% leverage, pays 5.5% tax free, and if 10 year bond yield falls 2% over next year, likely with rate cuts coming, then this will appreciate by about 15%
for Mild to Moderate Risk to capital, buy EDV, Vanguard 30year zero coupon US treasuries, pays about 4%, taxable and if 30year bond yield falls 2% over next year, likely with rate cuts coming, then this will appreciate by about 60%
Don't put into stocks if you need the cash in <3 to 5 years due to stock volatility
Thank you. Im gonna look into these options. I was thinking of opening a brokage account and investing in Index Funds. I thought I could take my money out whenever if its not IRA/retirement related. - 2yJoshua ThompsonBusiness MemberAccountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
Quote from @Will Mejia:
Quote from @Joshua Thompson:
This is a tough one because your situation, income, risk tolerance all come into play when recommending other tax strategies. I would say figure out your long-term financial goals and determine the best course of action with this money. I've seen too many people try to force a tax deduction or strategy but end up putting themselves in a worse position by picking a strategy that doesn't align with their goals.
If you're done with real estate altogether there are a few recommendations. If not, can you take advantage of a syndication that plans to purchase a property by the end of the year and do a cost segregation?
If you're unsure, I would say put a minimum of 30% of the funds you received aside for taxes and use the rest to invest towards that goal you want.
If it helps set you at ease, none of our clients have ever been "killed" by the IRS, we haven't seen that dark side of them, yet. If I remember correctly your burial plot is one thing they cannot take from you, a most recent example being Nicholas Cage's plot in New Orleans. Haha Good luck!
lol. Thanks. Yes I'm done with R.E. Im thinking opening up a brokage account to invest in the stock market. I believe I can invest and then take out whatever I have to pay the IRS next year so at least it makes me some money before I part ways with it.
My long term goals are just to wealth build with my cash.
I dont plan on needing anything for another house, college, etc any time soon.
I may buy a car and travel but again I can take that out of the brokage account when I needed so at least it makes some money till then.
This is awesome, it sounds like you have a plan! I would highly recommend speaking with a financial advisor as they bring much value besides investment management. Let me know if you need a recommendation of one.
It might be a good idea to invest in a bond short-term ETF and get 3% on your money over the next 6-8 months, a financial advisor would be able to point you in the right direction. Also, keep in mind if you will owe a substantial amount you might need to worry about the penalties and interest depending on when you make the payment. They may be nominal or they may not.
Thompson Tax Group LLC550 Reviews - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes2y
Quote from @Will Mejia:
Quote from @Benjamin Weinhart:
Depending on how everything is set up, what you consider a max for retirement account contributions may only be the 20k limit whereas you can go up to ~$70k in total with other methods. It sounds like you should've talked to a CPA before the sale to help you do a little tax planning, but a bit late for that unfortunately. Also those improvements you did may only be able to be depreciated over time instead of all during this year depending on how much each one was and what they were.
As for the cash portion, keep it in savings for now, I always use 50% as a good conservative estimate when not knowing many factors about someone. That's 50% of the gain by the way, not the sales price. For the other portion, invest how you see fit really.
You can try accelerating some purchases that you would normally do next year to be this year, but there's not a ton outside of the normal stuff. (Don't buy stuff just for the sake of lowering your tax bill, it's not worth it)
HI Basit,
When you say "
You can try accelerating some purchases that you would normally do next
year to be this year, but there's not a ton outside of the normal stuff" you mean stuff for my remaining rental property right? Like a fridge etc?Well sure it could be a refrigerator or other improvements that maybe you were going to do anyway, but that's not the only option. For example, my county tax bills come out in October and they are due without penalty by February 28th. My city tax bills are due by 12/31, but if that day falls on a weekend then I get the next business day without penalty. I run a trial version of my tax returns in November to see (approximately) where I'm at for the year, and then I make decisions from there - do I want to pay for my insurance for all my properties by 12/31? Or do I want to postpone it to the following year? Some years I'll double up my property taxes in a single year if I need more deductions. One year we did a cost segregation study on a newly purchased more expensive property to accelerate depreciation for a tax deferment. ETC. But there's no good way to do any of this unless you know how much tax you expect to owe.
Skyline Properties - 2yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Selling your rental property for a big gain can lead to a significant tax bill, but there are ways to soften the blow.
To reduce your 2024 taxable income, consider selling any underperforming investments to offset gains with losses. Maxing out your 401(k) and contributing to a Traditional IRA(if under thresholds) or HSA can also lower your taxable income.
Additionally, charitable donations might offer a tax deduction if you itemize. If you see the power of real estate, you can reinvest your gains and then get the cost savings. Talk to your tax advisor if you have not already done so.While your cash earns interest in a money market account, you could also explore tax-efficient investments in a brokerage account to make your money work harder while preparing for the tax hit.
INVESTOR FRIENDLY CPA®5240 Reviews - Lender · United States · Member since 2020 · 1k+ posts · 499 votes2y
I have a tax specialist who's amazing. He's responsive, knows the ins and outs of the game, and specializes in business owners and investors. I can provide his contact info if you'd like.
Quote from @Henry T.:
You should send the IRS their money (or best esitmate) right after you closed. Hopefully it's not in the MM with your cash.
what's wrong with that is the minute you got your money, 15 or 20 percent of it belongs to the IRS. If you don't give it to them you will have to pay (8 percent?) penalty interest to them for the amount you have sitting in the MM. You should talk to a tax specialist.
- Member since 2020 · 22 posts · 10 votes2y
Quote from @Joshua Thompson:
Quote from @Will Mejia:
Quote from @Joshua Thompson:
This is a tough one because your situation, income, risk tolerance all come into play when recommending other tax strategies. I would say figure out your long-term financial goals and determine the best course of action with this money. I've seen too many people try to force a tax deduction or strategy but end up putting themselves in a worse position by picking a strategy that doesn't align with their goals.
If you're done with real estate altogether there are a few recommendations. If not, can you take advantage of a syndication that plans to purchase a property by the end of the year and do a cost segregation?
If you're unsure, I would say put a minimum of 30% of the funds you received aside for taxes and use the rest to invest towards that goal you want.
If it helps set you at ease, none of our clients have ever been "killed" by the IRS, we haven't seen that dark side of them, yet. If I remember correctly your burial plot is one thing they cannot take from you, a most recent example being Nicholas Cage's plot in New Orleans. Haha Good luck!
lol. Thanks. Yes I'm done with R.E. Im thinking opening up a brokage account to invest in the stock market. I believe I can invest and then take out whatever I have to pay the IRS next year so at least it makes me some money before I part ways with it.
My long term goals are just to wealth build with my cash.
I dont plan on needing anything for another house, college, etc any time soon.
I may buy a car and travel but again I can take that out of the brokage account when I needed so at least it makes some money till then.
This is awesome, it sounds like you have a plan! I would highly recommend speaking with a financial advisor as they bring much value besides investment management. Let me know if you need a recommendation of one.
It might be a good idea to invest in a bond short-term ETF and get 3% on your money over the next 6-8 months, a financial advisor would be able to point you in the right direction. Also, keep in mind if you will owe a substantial amount you might need to worry about the penalties and interest depending on when you make the payment. They may be nominal or they may not.
Thanks I am talking to my tax guy about what amount I would owe and taxes etc right now.
Regarding the bond short term ETF 3% , Im seeing 6 month CD's for 5%. Is there some advantange to the ETFs? - Member since 2020 · 22 posts · 10 votes2y
Quote from @JD Martin:
Quote from @Will Mejia:
Quote from @Benjamin Weinhart:
Depending on how everything is set up, what you consider a max for retirement account contributions may only be the 20k limit whereas you can go up to ~$70k in total with other methods. It sounds like you should've talked to a CPA before the sale to help you do a little tax planning, but a bit late for that unfortunately. Also those improvements you did may only be able to be depreciated over time instead of all during this year depending on how much each one was and what they were.
As for the cash portion, keep it in savings for now, I always use 50% as a good conservative estimate when not knowing many factors about someone. That's 50% of the gain by the way, not the sales price. For the other portion, invest how you see fit really.
You can try accelerating some purchases that you would normally do next year to be this year, but there's not a ton outside of the normal stuff. (Don't buy stuff just for the sake of lowering your tax bill, it's not worth it)
HI Basit,
When you say "
You can try accelerating some purchases that you would normally do next
year to be this year, but there's not a ton outside of the normal stuff" you mean stuff for my remaining rental property right? Like a fridge etc?Well sure it could be a refrigerator or other improvements that maybe you were going to do anyway, but that's not the only option. For example, my county tax bills come out in October and they are due without penalty by February 28th. My city tax bills are due by 12/31, but if that day falls on a weekend then I get the next business day without penalty. I run a trial version of my tax returns in November to see (approximately) where I'm at for the year, and then I make decisions from there - do I want to pay for my insurance for all my properties by 12/31? Or do I want to postpone it to the following year? Some years I'll double up my property taxes in a single year if I need more deductions. One year we did a cost segregation study on a newly purchased more expensive property to accelerate depreciation for a tax deferment. ETC. But there's no good way to do any of this unless you know how much tax you expect to owe.
That is a great idea. I didn't think of that. I will add that to my list of things to do. Appreciate it!
- Member since 2020 · 22 posts · 10 votes2y
Quote from @Timothy Hero:
I have a tax specialist who's amazing. He's responsive, knows the ins and outs of the game, and specializes in business owners and investors. I can provide his contact info if you'd like.
Sure can you send me his info>?
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