All Forum Posts by: Lee Busby

Hey, I know this thread has been inactive for a while, but I am trying to learn more about the ZERO percent tax rate. I am currently in the 15% bracket or lower that you described above and am looking at selling my rental property. Am I right in my understanding that since I am in the 15% or lower bracket, I may not have to worry about a capital gains tax?

Thanks

Ok, that was quite useful. I tried to run some numbers and it looks like even if I would owe capital gains, it would only be on a very small amount. Here's a new wrinkle for you...It appears that my married filing jointly taxable income is less than $72,800, meaning we may qualify for the zero percent capital gains tax rate. Maybe I am getting all worried about capital gains tax when I don't even qualify to pay them in the first place.

Do you (or anybody out there) have any understanding about that?

I think the 2 and 5 rule still applies. I'm not sure about the law changes, but I believe this IRS publication still applies: http://www.irs.gov/publications/p523/ar02.html

(see "excluding the gains")

The way I understand it, the Capital Gains part is like this:

If you sell a rental unit, you have to pay capital gains tax. However, if the rental unit you are selling was your own primary residence during 2 years of the previous 5 total years, you do not have to pay that capital gain tax upon selling. In my case, over the past 5 years, the house in question was our primary residence for 3 years and 3 months, meaning we still have 1 year and 3 months (or 15 months) to sell the thing and not have to pay capital gains upon selling.

You are correct, there is no capital gains tax until a house is sold.

Hello all,

I have been worrying for a bit about our rental property and what to do with it. Should we sell it before we have to worry about capital gains? Should we keep it because of the positive cash flow and great tenant? There are a lot of variables here, at least in my mind:

We bought the home here in Utah in 2005. Refinanced in 2011 to get rid of the mortgage insurance. Moved out of Utah in 2012 and converted home into a rental property. Tenant moved in in June 2012. We returned to Utah and bought 2nd home in 2013.

Description of rental property: 4/2 2300 sq. ft., built in late 1970's. Some improvements made over the years. Generally in good condition. Important for Utah - next to elementary, one block from jr. high, 2.5 blocks from high school, 10 minutes from University.

Rent is $1000/month, 7% of which ($70) goes to property management company. (Remember, we had moved out of the state and didn't plan on coming back so soon).

Our mortgage + insurance + taxes on the rental is $644/month. From my rough understanding of the market, I believe we would be able to pocket anywhere from $25K - $40K if we were to sell at this time.

Our current financial situation is ok, but could become tight. A few of the main concerns: 1. Wife is pregnant, 2. Car seems to be close to giving up the ghost, 3. other debt payments. Selling the home would allow us to be in good shape financially and take care of the 3 issues listed above. Probably wouldn't be able to invest in another property, but could save the money for our own next home or use some to improve the home we are in.

The tenant's contract is up in June of this year. The tenant has indicated she would like to stay in the home following the contract's expiration in June. Tenant has recently requested we redo the driveway (which is admittedly in poor shape, especially for shoveling snow in the winter). The tenant has been a dream tenant - has kept the house in great shape, lives there alone w/no pets. Prior to contract being up last year, however, tenant requested a 6-month renewal, which we denied and tenant re-upped for 12 months.

By my understanding, and please correct me if I'm wrong, we still have about 15 months to sell the home without having to worry about a capital gains tax. If we have not sold the home before those 15 months pass, it is my understanding that a capital gains tax would be a pretty substantial hit on our equity.

So here are some questions I have for y'all:

Should we sell or hold???

Would this property be attractive to another investor assuming the tenant would stay?

Should I even take into account whether the tenant wishes to stay or not? (that was another reason I went with a property management company)

Please let me know if any other info. about this situation would be useful. Thanks for your help.