Personal residence tax question

[cmoneyt8ker]

I can finally make a post now! Any expert advice would be appreciated. I bought a townhouse last year (that was in foreclosure) for 35k dollars for my personal residence. It was trashed and I have now completed my rehab(8 months later). I did all the work myself on the weekends and spent about 4k. I can now proudly say it is one of the nicer townhouses in the neighborhood. Thats the history... here is my situation.
The townhouse comps I have on my street put my value in the 68k to 75k range. I would like to sell the house now and start on a new one. If I am reading the law correctly I must have to keep the house for at least two years before I sell to avoid paying capitol gains on it. My first thought was to try and do a 10-31 tax exchange but I was told that does not apply for personal residences. Are there any loopholes that you guys know of that will let me sell this house and put all the profits into my next?
My long term goal is to keep rolling over rehab profits till I can afford a lake house in my area.

On a side note this looks like a great website with some very intelligent people. I hope we can all help each other make some money!
:cheers:

 

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[AroundTheWorld]

either rent it for a while - then 1031
or live in it for 2 years... (buy another as a rental property while you wait)

You can do the less than 2 years thing, but only if you are moving more than... (50?) miles away and it is because of a change in jobs. If that is the case, your gain will be prorated according to how long you were there.

disclaimer: not a tax person, blah blah.

 

[wildambitions]

Search thru Diane Kennedy's Posts on this site for insight. Good Luck.
Also, read Diane's book; Tax Loopholes. I believe it will address your questions.

 

[MJ DeMarco]

If you hold for 1 year, your tax is only 5% if you are in the 15% or less tax bracket. Above that, 15%.

Assuming a gain of $30K, you're looking at $1,500 tax and $4,500 tax respectively.

Now, if you hold for 2 years (16 more months), you get the exemption which generates a return of 15% (the ROI of tax savings holding-on an additional year.)

Formulating an answer is dependent on your tax bracket.

At the minimum, hold on for 1 year so you generate Long Term gains vs Short Term.

MJ

Disclaimer: I'm not a tax person and the above is an opinion, not advice.

 

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[kurtyordy]

If you hold for 1 year, your tax is only 5% if you are in the 15% or less tax bracket. Above that, 15%.

Assuming a gain of $30K, you're looking at $1,500 tax and $4,500 tax respectively.

Now, if you hold for 2 years (16 more months), you get the exemption which generates a return of 15% (the ROI of tax savings holding-on an additional year.)

Formulating an answer is dependent on your tax bracket.

At the minimum, hold on for 1 year so you generate Long Term gains vs Short Term.

MJ

Disclaimer: I'm not a tax person and the above is an opinion, not advice.

correct me if I am wrong, but aren't these capital gains tax laws set to expire soon? IF so, that could change a persons strategy.

 

[EasyMoney_in_NC]

Why sell it? Refi, pull all that money out (tax free) and rent the Townhouse. At worst you could rent it a few years, sell it within 5 years of having lived in it and pocket any further gains tax free (still considered primary residence if lived in 2 out of the last 5 years prior to sale), while having used the refi now for another project. Win, win and building net worth to boot!

 

[I85]

My long term goal is to keep rolling over rehab profits till I can afford a lake house in my area.

So, get ready to list it and get ready for the next one . I assume that you could market the home now, but if you found a buyer...you couldn't close until it had been one year. I am NOT an expert, so you would have to verify that with someone who is an expert.

I like to turn my money, so I would be getting ready to sell it. Do you want to sit on it an extra year to save an extra $2k-$4k, or would you rather spend that year hopefully making $20k+ off another property? If you don't mind the moving and selling of the extra property, then it seems pretty easy.

I would sell it and move on. However, only you know what is best for you.

Just make sure to look at what YOU will make, not what Uncle Sam will make...but what YOU will make. I've seen many people make less money off of a deal, just because someone else made even less too(or pass on the deal entirely). Who cares what another investor is making or what the government is making. If you are putting more money in your pocket, that is all that matters.

Why sell it? Refi, pull all that money out (tax free) and rent the Townhouse. At worst you could rent it a few years, sell it within 5 years of having lived in it and pocket any further gains tax free (still considered primary residence if lived in 2 out of the last 5 years prior to sale), while having used the refi now for another project. Win, win and building net worth to boot!

That could work but maybe they do not want to rent out residential properties. Also, to get out of capital gains, they would still need to reside there for another year.

 

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