Sell Rental and Get Hit With Huge Capital Gains Tax?

Sell Rental and Get Hit With Huge Capital Gains Tax?
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[Chele-nmqx]

We sold our old body shop of 19 years & was going to get hit with capital gains- so we put solar panels on the new body shop & got a 30% tax credit which ate that capital gains. 1/2 the electric bills, win, win! 🙌🏼

[tomm]

You do a 1031 exchange, buy residential properties. Rent them. After 3 years (so when you add your 2 years of residence the exchange occurred five plus years ago), move into one of the homes converting it to your principle residence. Live there for two years, sell home keeping $250K/$500K (single/married) as tax free gain. Move into the next home for two years. Keep repeating until you get money out tax free. You will have to recapture only the amounts that were depreciated for taxes.

[jwc]

NOBODY talks about the hassles of actually pulling a 1031 exchange. I studied it, and tried it myself. It is a big headache. Very restrictive. And there is lawyer fees, Escrow fees, and 6month window that you HAVE TO close on the next property... these are the reasons why I just paid capital gains tax and be done with it. Paid tax and invested the cash in Nasdaq ETF QQQ. in 2 years, I've made MORE than the 15% tax I paid.

If you have a multi million dollar commercial building, like the one located in 1011 Reams Fleming Blvd, Franklin, TN...  then 1031 exchange make sense. But for a little guys like us with cheap rental homes... just pay the tax and stay liquid. 15% tax is not too bad on a transaction where I actually made money.

[adamdejesus]

4:08 - correct, 2 out of the last 5 years *unless* you are military and vacated/rented the property because you took orders to another location. In that case the exemption lasts an additional 10 years which is pretty sweet. Still have to pay back some depreciation but not 15% capital gains tax.

[AdamGbl]

He should offer a rent to own lease option for his tenant..basically handing over responsibility for property management and the tenant is on a path to buying it....while collecting a slightly higher cash flow.

[joslinnick]

If he has a good renter that pays on time, it may be worthwhile to hold onto the property. I know somebody who was in his position. He sold his rentals with reliable tenants, consolidated those rentals into a larger apartment complex, but due to externalities that he couldn't predict, the apartment complex was never able to cash flow. He did end up selling the complex for a profit, but that was seven years after he originally purchased it. He had to wait out much of the 2008 recession before he could find a suitable buyer.

[ACFinLA]

The current capital gains tax rate is 15% if your total taxable income (including the capital gain) is less than ~$440k. It’s 20% if the total income is higher than that. So in the example from this video, it’s most likely 20%

However, Congress just proposed raising the 20% capital gains rate to 25% effective 9/13/21. If the bill passes, and you don’t have a binding sales contract dated prior to 9/13, the rate will be 25% on any gains realized after 9/13, if the total income is over the ~$440k threshold. They’re planning to sneak this into the $3.5T “Build Back Better” bill.

[Rinaj]

Hello - Trying to see what my capital gains limitations are (or if any). Bought a duplex for $160k in Sep 2022, probably worth $180k-$185k. When is it a good time to sell a rental investment to limit capital gains? Please assist.

[shawn]

Very good topic and video! More real estate guidance videos please!

[alexp]

So if you have to live in it for 2/5 years to not pay property gains taxes. Move into the rental and live there for 2 years and then sell it. I believe it is one way to do it. But I am no expert.

[thomasamendola]

1031 into a Delaware Statutory Trust (DST). DSTs make the timelines easy to achieve, gives you economies of scale, and takes away all management headaches.

[tylerowens]

Where are the typical Dave Ramsey you in any other debt? How much do you make a year? Is your current home paid off? Dave struggled to give advice on this one because the best path typically involves leverage of more debt to grow wealth exponentially.

[Carolyn-vhnz]

Hello I read online that if you bought your home Prior to Jan 01, 2009 none of this being in the home 2 of 5 years apply to you. For example if I bought my house in 1999 (which I did), and lived in it for 7 years t hen rented it out, (still rented today), none of this should apply to me and im grandfathered in and can keep any profits I make...is this true? How do you interpret this rule?

[nicholasshook]

Depreciation recapture is 25% then the rest of the gain is 15%

[TheAnthonybellomo]

Love it when Dave mental maths the numbers. Really cool to see someone with a deep understanding of it.

[noopz]

Never sell 1031 exchange til death + write off depreciation + heloc/ cash out refi life style .

[saulgoodman]

You only pay capital gain on the difference between the purchase price, and the sold price.
So it will be lee than 90k in tax.

[lynnebucher]

I have a friend who did a 1031 exchange when she sold one vacant lot and bought another. Fine, but now she wants to build a primary residence on it. I keep telling her I don't think that's how 1031 works.

[jay]

Move back into the home for two years? Could possibly be worth the $90k depending on the rest of his financial picture.

[TheKShepherd]

What about recapturing of depreciation if you just rented a room (not a rental property)? Mother rented a room and the accountant depreciated the sqft of the rooms that were rented (so not the whole house and it wasn't a "rental property") It was her primary home (still is) The house is in a revocable trust, going to my wife (sole beneficiary) So when we go to sell the house once it's passed down in the trust to my wife, does depreciation follow the house? Will we have to pay the recapture of depreciation? Don't even have a clue what those numbers are. I just know they depreciated the sqft of the room when I came across some old returns. Thanks