All Forum Posts by: Bruce Reeves

Found the example below on a website. This is the way I understand my first year tax liability when selling via installment sale. But after way too much time searching online, I get conflicting advise. I modeled a pro forma in my TurboTax and did not get this result. 

What does BiggerPockets say?

Let’s say you purchased a property for $400,000 and owned it for ten years. The property’s annual depreciation would be approximately $14,545.45 ($400,000/27.5 years).

• Your adjusted cost basis would be $400,000 – ($14,545.45 x 10) = $254,545.50
• So the realized gain on your sale would be $500,000 - $254,545.50 = $245,454.50
• The depreciation recapture tax would be 25% x $245,454.50 = $61,363.62

The challenge here is that depreciation taxes aren’t deferred or “spread out, " unlike capital gains taxes.” According to the IRS, you must report “any portion of the gain from the sale of depreciable assets that’s ordinary income under the depreciation recapture rules in the year of the sale.” In English, this means you must report the entire depreciation recapture amount – and pay that tax – to the IRS in the same year the sale takes place.

I had a similar question as well. I don't want to 1031 and I looked into the DST. I read you have to be an accredited investor (200k income or net worth 1M+), I'm neither.

So my solution to stomach the cap gain/depr recap is to seller finance. Of course this does not avoid it, just spreads it out depending on how you arrange the financing. 

May be an option for you. I feel better having the loan collateral than taking the net proceeds to the stock market and add to my IRA.

Own a duplex. FMV about 375-395k. Owe 50k. Goal - sell and be done with landlording. Been a landlord for 25 yrs. Now retired and want to remove myself from it. No 1031exch, just sell.

Got SS and IRA funds for retirement. Would like to stay diversified and not put sale proceeds in the stock market. I'm thinking maybe seller finance. Use the down pymt in two years, then I owe 35k, to pay it off. Or not and wrap. Perhaps 5 or 10 yr balloon. Spreads out the cap gain/depr recap. 64 yrs old now, figure I can deal with the lump sum payoff decision when it comes.

Current tenant very interested in buying. Not sure if they will be able to when the times comes, spring of 2025 or so. Very good market, add seller finance and I won't have any issue finding a buyer. 

Any advice if my goal is to stay diversified but out of the landlord game completely? Ruling out property mgmt. 

I did take a quick look at the DST idea. If I remember right you have to be an accredited investor which I am not. Is that correct? I haven't lived there since 1999, so no soap on the exclusion.

Landlord since 1999. Duplex I lived in back in the day and kept after moving out. Very good area (Northwest Arkansas) and good property to attract solid tenants. It's been 95% good experience all these years as I screen tenants properly.

Bought for 125k with loan, value today approx. 335k. Ran a proforma sale through TurboTax to see the damage Cap Gain and Depr Recap would bite me. It's impressive, about 60k.

Retired three years, 64 now. Duplex mortgage will be paid off next year. Rent income will net annual about 17k. As far as risk goes, based on my 23 yrs rental history, I put the risk of significant income interruption at very low. More appreciation very likely.

But, I would like to divorce myself of being a landlord. I've paid my dues and prefer to simplify.

I run three scenarios in Excel to see which options leaves me with the most cash at 70, 75, 80, 85, & 90 yrs old. 1) Sell and add 275k to my three fund Vanguard portfolio, 2) not selling and maybe get property mgmt and 3)  seller finance. If I could get a minimum 4% market return for the next 20 yrs, I would sell as soon as my tenants payoff the mortgage next year. But no such guarantees are available.

My fear. A prolonged bear market and watching my investment slowly dwindle and want to kick myself for selling a "sure thing".

Possible solution - seller finance at 6.5% or whatever with a 10 year balloon. At the 10 yr mark, a 30yr, 335k loan at 6.5% with 10% buyer down has a payoff of 284k. Total pymts to date to me 252k.

This takes my anxiety away as I have excellent collateral if buyer gets goofy. Plus an infusion of cash (less taxes) in ten yrs.

Many more variables to come into play, but what do ya'll think about the seller finance route to ease my investment diversification fears and spread that tax impact?

Hit an air pocket in my strategy. The duplex will be fully depreciated, so I'm on the hook for that regardless of moving back in or not. Tax savings only on the capital gain kinda kills the deal. Oh well, it was a thought.

Just knocking this idea around and have a few questions.

I have a duplex with tenants and in the next few years would really like to exit the landlord arena. I've been renting the duplex for 22 yrs and it will be paid off in three years. I've put my capital gain and depreciation recapture tax in my Excel spreadsheet, and as we all know, it ain't pretty.

About 55k in taxes. Not interested in 1031exch, etc. Annual rent for both sides combined would be about 22k.

If I moved back for years 2024/2025 for two years occupying both sides, any reason I can't sell tax free? I did sell my primary residence in 2020 tax free, so I will be past that two year exclusion threshold. Currently renting a house.

My thinking is, the tax savings makes up for the lost rent and then some and no tenants or repair/maintenance other than what I choose to do.

Can I occupy both sides per the IRS for primary residence? I will be doing that, so not trying to slide anything under the table.

Thanks for any advice.

I want to do a 1031 exch. Sell my current duplex rental and buy a rental duplex or house in the next town I will be moving to in about ten months. Just retired and I have zero income. I have cash to live on for the next few years before I tap the IRA.

I understand one of the requirements of the 1031 is to carry the same debt as the property being sold. I will owe about 70k when I sell so I assume I will need to carry that same amount on my next purchase. So if I am buying a SFH or duplex for 200k and putting down 130k cash, can I get a asset backed loan if I park the remaining 70k in an account for collateral?

Thanks for any advice.