All Forum Posts by: Sean N.

Quote from @Michael Plaks:

@Sean N.

As other people already said, your accountant is correct. 

While I understand your frustration, it really was not economically sensible to expect a different result. If you bought a house for $63k and sold it for $270k, and you have NEVER paid any taxes on this house appreciation - why would you expect this gain in value to be tax-free in the end?

Where I'm not with your accountant is in her failure to alert you that you had an option to defer this capital gain via a tax strategy known as 1031 Exchange. But it had to be structured before you sold the property, so it's too late now.

And there were other options to deal with your capital gain, but they are also too late to pursue now.

Lesson for everyone: You save taxes by planning forward, not after the fact. Work with an experienced tax planner/strategist specializing in real estate and not merely a general tax preparer. It costs more, but it's so worth it. This forum features 20+ of us.

Consolation: an excellent point made by @Matt Devincenzo that you DID benefit greatly from being able to refi (and twice!) without paying taxes and deploy your tax savings towards growing your wealth. Yes, these savings were temporary but nevertheless valuable.

Just finished listening to another BP podcast about a caller that wants to buy another rental property but isn't sure how.  He has a ton of equity in another rental so they suggested to do a cash out refi to buy another (sounds familiar).  Out of the 10+ years I've been listening to all these podcast there is a part 2 they never talk about . . .  selling said property, other than 1031 or doing a land contract AKA seller financing to avoid these gains.  Yes, I could have done a 1031 but since the market is still over priced, my gain wasn't even enough for a down payment on something of equal or greater value so I had to take the hit.  I just didn't realize it was going to be that huge.  I'm just happy that my wife doesn't make me sleep on the couch.

In the future, before I do any refi's, HELOCs or selling of any properties I will definitely be talking to my CPA first.

Thanks everyone for your help.  Sometimes it helps to bounce things off the community and maybe help future investors too.

Quote from @Lynn McGeein:

It sounds like she may be trying to explain that you purchased in 2012 for 63K, which would have been depreciated until now, then sold for $270K, so you'd owe gains on the difference between the depreciated purchase price and the $270K you sold it for, which she says is $180K, no matter how many times you pulled cash out in a refinance.  I don't think taking cash out in refinance raises your cost basis to calculate your taxable gains at sale unless you used the cash-out refi for an addition to the house.  I'm not an accountant, so could be wrong, but I think you're confused because it sounds like you're thinking that your cash-out refis somehow provided you with tax-free profit for the amounts you pulled out?  

 Yes, that's exactly what my accountant said.  I was just mislead into thinking that if my mortgage when sold was $170 and I sold it for $270 that my gain was only $100.  But you are right, and she's right.  I think I'm just going to write that check and use it as a learning experience. 

I did ask her about selling the house about a year ago but she didn't know about the refi's.

I bought the house for $63k.  After the last refi the new mortgage loan was $170k and sold the house for $270k so I thought I was going to owe on a gain of $100k but she says I'll owe on a $180 gain because she's calculating on all 3 gains.  These are just round number but close.  Not counting closing cost and other fees.

So hearing everyone talking about doing cash out refi's to buy more property I did but it came back to bite me in the butt.

I bought a rental house back in 2012 and naturally values went up so after a couple years I did a cash out refi and used the gain for the down payment on another rental property.  Fast forward a couple more years and the value went up again so I did a cash out refi and used the gain again to buy another rental property.  I sold the house last July and my account says I'll owe on the gains of all 3.  The 2 cash out gains and the gain on the sell even though I used the gain on the first 2 refi's to buy rental property and didn't use it to do any repairs on the 1st rental property.  I'm not saying she's wrong but I'm guessing these are questions I should have asked before I did that but how do I know what questions to ask if I don't know what questions to ask (aka, you don't know what you don't know).

Any way or thoughts I can try to limit my the taxes that are owed?  Or maybe this is just a heads up for any future investors thinking of doing the same thing.

Thanks

Request/PM sent

Last month, I gave them a letter and it basically said "your 12 month review is coming up and we decided to not renew" and gave them a move out date.  Their first text msg to me was "i'm disabled, you can't get rid of me".  

The smoking tenant use to complain all the time about the tenants next door (their music is too loud, their kids are talking too loud, their car is parked in front of my side). I was getting texted once per week until I told them (6 months ago) they were in a violation of their lease, they said they'll stop and ghosted me. (Sshh don't say anything and the landlord will forget we smoke pot).

Their lease is up in March for review (regardless they are month to month) and I do not want to renew.  They are $500-$600 under market rent and I want to turn the unit into a MTR.  It's located smack in the middle between 2 major hospitals or use it with the insurance companies for misplaced families, which I have done that before.

Yes, they are allowed to smoke outside, state says I can't deny that but other people like to have their windows open on nice days.

I thought about that too.  Giving them 2 or 3 months notice.  I have been attending several different REI meet ups and asked several different people about this months ago.  They said don't give them more than 30 days.  It will just give them time to lawyer up.

I have been a RPOA member for over 7 years.  I haven't called them yet to ask for suggestions. Thanks