All Forum Posts by: Ronin Crimmons

@Ronin Crimmons, Several folks hit on the idea of converting to investment for a year and then selling and doing a 1031 exchange.  What I didn't see is that you can actually do both a primary residence sale (tax free 500K) and a 1031 to defer the rest of the tax.

Move out, convert it to investment by whatever means you choose.  After a year sell it.  Take the first $500K of profit tax free (if you're married).  And do a 1031 exchange on the rest.

The reason this works is that you qualify for both provisions.

1. The property you sold was an investment property so it qualifies for a 1031 exchange.

2. You have lived in the property for 2 out of the 5 years immediately prior to sale.

Since you qualify for both.  You get to take both.  Some profit tax free.  the rest indefinitely tax deferred.  Not a bad deal is it ??!!!

 All of the above options I read here are options which can be taken. Just read about Deferred Sales Trust... I don't think this wise to avoid tax to take installments pays in exchange. 

Depending on person the lump sum of the sold property invested will make more over the years what you save in taxes today. 

Another post suggest, taking out equity to the limit where you have to pay taxes and to the level where rent payment is covering the equity taken out make sense. But this is kicking the can down the road. The house will appreciate and if the kids inherit the property, they will be stuck in the same situation. 

As some already suggested. Selling it, paying the taxes, invest the rest in a good portfolio, using that income to rent something or buy something nice is the way to go here. Don't make life difficult, saving 100-200k in taxes is not worth holding 2m hostage. Free that 2m and let them work. Those 100k-200k is are recouped in no time.

 Sell and pay tax , the gov and market gives you free money without doing anything 

@Ronin Crimmons

20% of 685k is $137k would be your federal tax liability that i see...

If you have any other capital losses, you could tax harvest to offset that gain/liability.

Are you already an investor?  I wouldn't start for the sake of 6% of your home value (137k/2.3mil).

Just to balance off, you are still getting ~2.1mil from 1.1mil --- that's double your money after whatever number of years.  Don't dig yourself into another "situation" just because you are spiteful about paying taxes.  While I am guessing you will be taking some or all of this equity to your next home, if you try to leave it deferred via renting then1031, then the capital will never really be available to you unless you pay some tax.

The sec121 exclusion of 500k is considered the best tax break.  If you don't use it now, you lose it and basically just make your situation worse.

Don't forget that if you start renting, you'll have to take depreciation.  At your home value, that's a lot of tax liability being built up per year that you will have to pay back if you sell.  So, thats a fair amount of equity that you are pricing yourself out of due to not wanting to pay ~6% of your gain (federally anyway).

Probably not as sophisticated as the Deferred Sales Trust, but an installment sale would spreadout the liabiilyt and maybe you could be federally taxed at 15% instead of 20%, thus saving 5%.  You'd also save on NIIT which I think applies which is 3.8% on i THINK over $400k (I don't remember the exact number anymore).

Good luck.

Run the math not a BOE but an actual calculation to determine your tax so you can actually make an informed decision.  After that, tell us what your tax rate is on your 1MM plus gain?  

Read Publication 523 and let us know what you figure out for a conversation starter.   

Jonathan Bock, CPA 

A lot of us have a very small % of our world in our primary residence, so hard to relate.  I can't get my head around a double comma home.  What for? Maybe that's just a regular house in your market?

My primary is less than 10% of my total stock and RE portfolio + there is an ADU covering the bulk of the mortgage. It's an afterthought on my balance sheet. Oh yeah, that. Almost forgot. If I were you, I'd have have a mil in assets like apt bldgs long before I just slept in it. Wait, I do. LOL But it's all relative. Maybe $1M isn't much in your world.

Paying off your primary is never a dumb thing to do, I'd just be hesitant capping my return at 3.5%. Opportunity costs. Return maximization. Doesn't add up when you pencil it out with a calculator.

Congrats on having a portfolio that allows this choice and good luck however you choose to play it!

You're not accomplishing anything. You would be taking your profit, and saving interest on a loan where you are not the one paying. The source of funds to pay the mortgage, on a PCF property, is the tenant's rent. That's someone else's money. They are buying the property for you. Don't help them.

No.