All Forum Posts by: Payman A.

Hello Naseer and thank you for your reply.

I had confused myself (and gotten my hopes up) by not considering the "adjusted cost" for the scenario.  

Thank you both for your replies.  I was aware of most results shown on the tax calculator but to be honest, a couple of the calculations created more questions. (ie: why are closing costs being added back for capital gains?  what is "RECOGNIZED (TAXABLE) GAIN" and does it even get plugged into a tax liability formula?  and unfortunately, it did not give me an estimated tax liability with an exchange down scenario...just the difference in equity).  

If possible, I would appreciate these numbers plugged in for a scenario comparison as either of you would see it:

- Purchase price of property to be relinquished: $190K (purchased 10 years ago)

- Total depreciation: $60K

- $150K loan balance (but doesn't makes a difference right?)

- Selling price of $210K

- $10K closing costs

My understanding is that I would owe $15K depreciation recapture + another $1500 capital gains if there is no exchange.  Is this correct because the calculator taxed me on the $10K closing costs as well for a total of $3K capital gains tax.

How would my tax liability be affected if I purchased a $100K replacement property?  ($70K would be financed but again, I don't believe that makes a difference right?)

Thanks again and sorry for the lengthy post,

Payman

Hi guys,

Posted questions in the Tax category but didn't get any replies so coming back here where I've previously had great communications.  One of my three questions is really not relevant so here are the other 2:

- Is depreciation recapture tax rate in fact a flat 25% regardless of tax bracket?

- If a 1031 is used to exchange down, how is the depreciation allocated? (are the deferred and payable portions directly proportional to the values of the relinquished and replacement properties?)

Thanks,

Payman

Hi all.  I'm a bit confused on this issue as I read about depreciation recapture being taxed as "ordinary income" then I see mentions of a "flat 25% rate".  I have a 3 part questions:

- So will the rate depend on your tax bracket like ordinary income or is it a flat 25% tax? (asking because I'm in a low tax bracket, not because I'm worried about paying a higher than 25% rate)

- If a 1031 is used to exchange down, how is the depreciation allocated?  (are the deferred and payable portions directly proportional to the values of the relinquished and replacement properties?)

- Is depreciation recapture in fact avoided entirely if an investment property is sold at a loss or breakeven?

Thanks in advance,

Payman

oh and loan would be $50K with the $5K holdback, purchase is at $45K.

Hi all,

I'm about purchase using an escrow hold back so I can roll repair costs into the loan but I've not been able to get a clear reply from my loan officer regarding details of the process.  Lender will require 150% of the repair amount to be in escrow but that's as far as was explained to me.  So in the case of a $5K repair estimate and a $50K loan, is $7500 held back until repairs are done then $2500 goes to seller and $5000 to buyer?  If not, I'd appreciate a quick line by line explanation of the process.  Thank you in advance, Payman

 Excellent!  I had actually provided my property's info to my agent and found out today that she had not shared it with the seller.  Obviously (or maybe not), that was the purpose so I requested her to do so.  Also, seems like we are both working towards making this happen so I feel a little better.  Thanks again for your conversation.

Hi Dave,

I appreciate the response and you are right, I had not thought of the benefits that might apply, however, neither property is in that dynamic of a market (selling in E. Raleigh, NC and buying about 40 miles outside of Baton Rouge, LA).  Also, by my request a fantastic tenant has just moved out so I am ready to list/sell asap...flying out to NC on Tuesday (luckily, consensus among agents I've spoken with is 30-60 DOM if we get in before Spring).  By the way, the dollar amounts are low as well (around $200K) so $3-5K in extra costs is more difficult to justify.  Often a seller might think that purchasing is contingent on buyer selling an existing property (as seller's agent has suggested) but in my case it's kind of the revers...selling is contingent on my being able to buy this property (in order to use a 1031 that is).  Hopefully I can convince seller to be patient or even offer a non-refundable "1031" deposit.  

Good day all. So I'm about to list a "break even" SFR for sale mainly to defer taxes since I've got my eye on an income producing 4plex but seller may not wait for forward exchange to take its course. Any ideas on the lowest fees I can expect to pay for a reverse and where? I've been getting quotes for $4K-6K vs. $1K for forward. Thanks, Payman

 Perfectly explained, thank you!