All Forum Posts by: Sigurd Panke

I appreciate the comments Basit and Jack, and if I were in another scenario, your advice would make way more sense than the seller financing scenario that I laid out. The reason I'm interested in it is that I'm 54, not working, and living off the sale of a personal residence from a couple years ago. That money will run out soon, and I have this rental house that could provide me w/ a tax free income stream of $60,000 - $70,000 per year for the next 5-6 years, after which I would access my IRAs and pensions and live off those. 

I want to divest myself of my real estate, not continue to invest, so 1031s aren't of interest to me. This is all about living for the next 5 years and basically being retired from here on out

Selling w/ owner financing would save me about $80k in federal and state taxes and selling expenses, and I would be making another $10k or so in interest, so I would be netting $410,000 on the house price of $400,000 rather than $320,000. $90k for the hassle and risk of owner financing is a compelling number.

I've only taken 11k or so of depreciation, and all of that is unrecaptured Section 1250 gain and is taxed as ordinary income in the year of sale. However, because the 11k of depreciation and the amount of my other ordinary income is less than the sum of my HSA deduction and standard deduction, I will pay no income tax on it, as I understand it. 

I think that some years ago you had to pay 25% tax on your unrecaptured Section 1250 gain no matter what, so people have it fixed in their heads that you're going to pay it, and there's lots of misleading websites out there still saying that you're going to get taxed 25% depreciation recapture, but I think the IRS changed it somewhere along the line and that is no longer completely accurate, as discussed here:
https://www.taxcpe.com/blogs/news/recaptured-and-unrecaptured-real-estate-rental-section-1250-gain 
and here:
https://forum.thetaxbook.com/forum/discussion-forums/main-forum-tax-discussion/28485-is-the-schedule-d-tax-computation-worksheet-flawed

I am hoping that a CPA might respond to this post. 

I'm going to sell a rental house via owner financing and I'm playing around with various loan amortization schedules to settle upon loan terms where I wouldn't pay any capital gains taxes on the sale. The buyer is flexible and has already agreed in principal to basic terms. A 420k sales price w/ 15% down, 6 yr loan @ 1% interest, yearly payments, would mean that my Form 6252 yearly payments would be around 62k and w/ a gross profit % of 75%, the yearly capital gains would be about $45700. Other income would only be about $6000, for a total income of roughly $51700. HSA deduction and standard deduction would give me taxable income of around 35k. In this scenario, as I understand it, I would pay $0 in federal income taxes for six years while living off the yearly payments. Why a 6 yr loan? I'm 54 and retired and this could get me nicely to 59 and 1/2. 

Am I correct? Any tax pro comments would be appreciated!

I'd appreciate it if replies stick to the topic, which is taxes.

Thanks!

Bob, thanks for that info. I'll do further research and determine what my minimum requirement is.

Aaron K., thanks for reply. I'm thinking that same thing. I did some further research and found what I think is a pretty clear answer from the IRS:  https://www.irs.gov/faqs/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc

I'll be closing on the sale of a rental home on 1/2/20, and will incur around $15k in long term capital gains taxes on the sale. 

Do I need to pre-pay the IRS some taxes, or can I wait until April 2021 when I file my 2020 return? 

Please refrain from replying if the main point of your reply is to tell me to seek professional advice from an accountant. 

I'm renovating a three bedroom, one bath single family home and will rent it out when done. Two bedrooms and bath on main floor, and in the partially finished basement is one bedroom, an 18' x 11' bonus room, a laundry room and a furnace room. I'm considering partitioning the laundry room in half and adding a half bath.

Sewer main is above basement floor, so if I put in the half bathroom, I'd be installing an upflush toilet like the Saniflo Compact or the Saniflo Sanibest. 

I'm wondering about future problems with an upflush toilet from renters being careless. Reviews of upflush toilets talk about pump issues when non-toilet waste (bobby pins, dental floss, sanitary napkins, etc) gets sucked into the pump. 

The basement is a really nice space, and a half bath down there would be functional, but I don't want to be coming over here once a year to troubleshoot a toilet.

Can anybody speak with experience about a rental that they own that has an upflush toilet in it and whether it's been problem free or a real hassle? 

Thanks!