All Forum Posts by: George P.

Brandon, thank you. To clarify - the property was rented for about 10 or 11 years, so the $500k exclusion rule does not apply.

Also, I am not taking the advise, i am just bouncing this "trick" off the BP wall.

If you think about it, the gain that occurred before the property was converted should not be taxed. Because if you sold the property instead of selling, the $500k rule would kick-in, or - if you bought the property at that time, you would have paid FMV. Seems like Canada recognizes that, but IRS does not.

THOUGHTS ?.....

dup

ran into a REI investor yesterday and we got to talking about his rental properties (that he apparently sold).

he suggested that the last one he sold, was originally converted from a primary residence.

his calculation of the tax basis use the FMV of the property at the time of conversion. I don't quite remember the numbers, but the property price more than doubled by the time he converted it. By the time he sold it, it went up in price some more.

His reasoning is that he should not pay the capital gain on the amount the property appreciated before he converted it, because the proceeds would otherwise be tax-free (due to primary residence $500k exclusion). He only pays capital gain on the amount the property appreciated after he converted it (plus depreciation recapture).

I see his point and understand that in Canada they use FMV at the time of conversion.

--> Thoughts from the REI veterans on this strategy, potential issues with IRS etc. ?

Originally purchased as Primary residence for 160k; lived in it for 7 years w/o making any improvements.

2011 - property converted to rental property. FMV at the time is 210k.

2017 - sale of rental for 220k. Cost of sale appx 20k (incl first time home buyer subsidy at closing).

Depreciation taken during this time appx 27k (per accountant's calculations at that time, tax basis used 160k * 80% / 27.5 years).

I want to make sure my calculations below are correct....

Adjusted cost basis = 160k-27k=133k

1) LT tax gain = 220k - 20k cost to sell - 160k = 40k --> taxed at 15% --> 6k

2) depreciation recapture 27k @ 25% = 6.75k

Rental Property Tax Bill Due in 2018 = 12.75k (6k + 6.75k)

Thank you in advance.

yes, thank you, Jeff.

The Closing Disclosure replaced HUD-1, consists of 5 pages and among other things include the following (straight from your link):

o Information identifying borrower and loan;
o Loan Terms table;
o Projected Payment's table; and
o Costs at Closing table

(here is the link to the CD itself: (http://files.consumerfinance.gov/f/201311_cfpb_kbyo_closing-disclosure.pdf)

Further, it says "The settlement agent must provide the seller its copy of the
CD no later than the day of consummation".

But where does it say the seller has no right to know the closing costs? I guess I would have to take 30 classes next year to find out. But nevermind, I won't know even then.....

Sorry but this simply is not true. You know HOW I know? This is the third property we close on in the last 6 months, and the first 2 times we received full complete Closing Disclosure before the closing without even asking for it (yes, with itemized closing costs charges). This time I also received it, just had to ask for it. And yeah, we used three different title companies each time. So if TRID in fact prohibited sharing information, title companies would know about it, wouldn't they?

 I am sorry to have questioned you again, but if by contract the seller subsidy is stipulated to be spent for the closing costs of the buyer, how can the leftovers be given to the lender????? 

 Russell - that's exactly what my agent said but can't prove by pointing at the exact paragraph in the law. Can you point at exactly where it says that?

From what I understand, TRID replaced HUD-1 with the 5-page Closing Disclosure. here is the sample of the Closing Disclosure - it itemizes all closing costs as well as the HUD-1 did.

turns out the buyer's loan officer was hard to reach. 

received the papers just now.

Thanks everybody