All Forum Posts by: Bill Ramsour

Thanks again, this is super helpful.

Thanks for all this info!  It's super helpful. A quick follow up to:

4. If your other income is higher than $150,000, then none of your losses are deductible in the current year unless you qualify as a Real Estate Professional (addressed in item 6 below).

do you know what things are grouped together within this bucket of losses.  Meaning I'd assume things in the same category all count for/against each other, and it only becomes non-deductible if the total for this category goes negative.  Owning multiple rentals seems like a fairly obvious (I hope) situation where the net is what matters (imagining one was positive and one negative).  What about owning a loosing rental and a profitable portion of a crowd funded real estate venture?  Or investing in notes?  stock?  

Again, thanks so much for your help.  this is great

I'm sure this is asked elsewhere but I wasn't able to find it.  I found some things online, but I trust these boards more than the wild web.  

I have a single family rental.  With depreciation, sometimes it's slightly positive, sometimes negative on my tax return.  The question is, can I use the negative return to offset any other tax burden?

1. carry it forward to a future year? (pretty sure this one is real)
2. use it that year to offset other investment returns? (stock, note interest, etc.)?
3. continue to carry it forward until I eventually sell and use it somehow to offset something then?

all those things?  Some? None?

Thanks,
Bill

Ugh.  That means I'm saving [less than 25%] tax now, so I can pay a full 25% later.  I'm sure there's a mechanism through investing, or calculating inflation, to feel good about it, but as it stands, I wish I could just skip depreciation. 

Thanks for your help again @Dave Foster

-Bill

Thanks @Dave Foster - that was super helpful!  It adds a lot of clarity to my understanding of things.

There is one part of your statement, that if I understand correctly, surprises me, so I'd like to verify my understanding.  You said that essentially the basis transfers from the old property to the new one.  So if I bought a house new house for $300k, my basis would be $215k.  My question is: Does that basis forget the division of gains and depreciation (which is what I'm inferring, perhaps incorrectly, from your response)?   Meaning, if I sold the second house some time later for a net of, say $330k (so $30k in gains), would the resulting taxes be: 
($30k + $70k) * tax rate + (new depreciation + $15k) * 25%
OR
($30k + $85k) * tax rate + (new depreciation) * 25%

Thanks again for your thorough response!

-Bill

I'm trying to understand the exact requirements on a 1031, but keep getting confused. I know... "talk to a pro for my specific needs"... and i will before taking action, but I'd like to understand my options before paying someone for info.

This house was my residence, then a few years ago i moved out and started renting it out. These numbers are appropriate to make math easy...

My situation:

- purchased for $160k.

- $15k in depreciation

- looking to sell it for around $250k

- i currently owe $120k on the mortgage.

- for simplicity, assuming about $20k in cost to sell (realtor, closing, etc.)

I think this means:

- my basis $145k (160-15)

- i walk away with $110 in cash (230-120)

- of that cash, $70k is "taxable gains", $15k is taxed as "depreciation recapture", and $25 is just mine.

So, i have a few questions:

1. Any mistakes in my baseline understanding above?

2. For the house(s) i purchase with the exchange, what is the minimum value of the purchase? $250? $230? $110? $85? It seems to me like it should be $110 or $85 because it it just feels odd that the IRS would require me to move into a situation where i have to get a new loan, or invest more cash.

3. How much cash do i have to put into the purchase? $110? $85? 20%?

4. Let's imagine it's a future date, and this new place has appreciated by $30k and been depreciated by $20k. If i sold, would i owe on $100k in gains and $35k in recapture? Or just the new $30k and $20k? What if instead of selling at that point, i moved in for 2+ years, then sold? All gains and recapture forgiven?

Thanks for your help!

Bill

Thanks for your input Jeffrey! I agree break-even isn't a great target, I was just trying to make my math easier. Though my study so far has suggested that I can either tilt towards a higher cash-on-cash return, but in a lower appreciation market, or a tilt towards appreciation.   I think I prefer the latter, as I'm focused on preparing retirement income, but this digresses towards an entire different topic :)

Regardless, this does answer my question. Both your advice and your math make it clear that even if I want a property that will appreciate well, I need good cash-on-cash return.  Losing 8% whenever I sell makes a purely "appreciation play" not nearly as valuable. 

Thanks again for the info, it's much appreciated,

-Bill

I'm new to these forums, so apologies if this is the wrong section or a repeat (I'm betting on repeat).  

Short version: when calculating return on a mid- to long-term rental property what sorts of fees do you account for?

Long Version: I'm trying to work out very rough models of what sorts of returns I should expect so I can better shop for deals.  Say my starting situation is this: $50k down on a $200k single-family rental property, giving me a $150k mortgage.  After 5 years of break-even rental income, lets say the house is worth $230k and I now owe $135k on the mortgage.  Without accounting for any fees and such, this would show $50k turning into $95k.  BUT, that's in a magical world where I sell the house like I was selling a book at a garage sale.  

So if we pretend the above could happen... how much should I expect to lose at the purchase, and how much at the sale?  I assume the $200k house will actually cost me an extra percent or two in fees and closing costs (making the mortgage more like $154?).  Then at the sale end, I'll pay 6% to realtors, plus other fees and such, right?  So my math becomes:

Starting mortgage = 200,000 * (1 + <fee%>) - 50,000
Ending value = 230,000 * (1 - <fee%>) - <remaining mortgage>

If I expect 2% at the front end, and 8% at the back, this becomes a starting mortgage of $154k, final mortgage at about $140k, and a final result of turning that $50k into about $72k.  In my spreadsheet I'd have more exact math, I'm just simplifying for discussion sake.

So, you account for these fees when doing your projections?  What fees do you expect?  And I guess while I'm at it: Are there tricks for reducing these fees?

Thanks, 
Bill