Check my numbers, thinking of eating the tax

[Jack B.]

Lived in it from2013 to 2015, then rented it out until 2018 at which point I moved back in for 2 years. Total time rented, about 4 years, total time lived in, about 4 years.

Bought 145K plus 5K closing costs, sold 416K.

Put new roof and water heater on for 14K to adjust my basis

25K selling costs.

10K depreciation.

By my calculations I have 217K that I divide by .5 to get 108.5 that I owe capital gains and depreciation recapture on, correct?

(145+5-10+14=154K) then (416-25-154 = 217) then 217/2 = 108.5

I make 308K a year W2 income. I'm expecting to pay 23% capital gains with the Obama care surcharge. Worth it or not? After 10 years of being a landlord of multiple properties, I've considered getting rid of them starting with this one rather than 1031 exchanging anymore. The have nots want what we worked for, cancel rent, live for free, but landlord you must pay and fix things in this 800K house you provide me for free....

[Michael Plaks]

@Jack B.

Your math is basically correct. The rate is closer to 24 % (23.8%), and depreciation recapture will be at 25% but it does not change the result materially. You divided it in half due to 4 out of 8 years non-qualified use (kudos for knowing how it works!) however depending on the exact dates it will not be equal to 50%. Other than that, you're on the right track.

Your question on whether it's worth it is both unclear and, IMHO, misguided. Worth it, as compared to what exact alternative? Keep it as rental? Continue living in it as your residence? Doing a 1031 exchange? Implementing some other deferred tax strategy?

You also need to take into consideration various other dominoes that may fall when you sell this one. The biggest one is potential suspended losses from this or other properties. If you have them, they will be released against this sale's taxable income. It can swing the result big time. There're possibly other moving parts on your tax return that would be affected by the sale.

The main reason I'm not a fan of your question is because it puts taxes at the center of a business decision process. When you decide what to do with your property, you need to take a holistic look, not just the amount of taxes. Consider your overall financial situation, your investments, your goals and future plans etc.