A Phony “Recovery”, bad idea? and other Musings….

[spdrun]

Horseshit. There are better and worse buys. Some areas (like NYC and SF) have 4% cap, and a crummy buy/rent ratio. Not much room for appreciation. Whereas areas with 8% cap have much more room for appreciation.

BTW, I’m not saying that the OP should sell, but there’s for sure money to be made in “churning” properties if the game is played right.

[bearishgurl]

[quote=spdrun]Horseshit. There are better and worse buys. Some areas (like NYC and SF) have 4% cap, and a crummy buy/rent ratio. Not much room for appreciation. Whereas areas with 8% cap have much more room for appreciation.

BTW, I’m not saying that the OP should sell, but there’s for sure money to be made in “churning” properties if the game is played right.[/quote]

I would agree with you, spdrun, but I think paramount has kids in school. He really isn’t able to “churn” houses one after another while moving into each one, especially with transaction costs as high as they are today.

Austin, TX, probably does not appreciate very fast, if at all. Property taxes are very high in TX and the “homestead law” there tends to put a damper on even long-term appreciation.

I think mostly all the appreciation is quickly being wrung out of Las Vegas properties. This area, along with Phoenix, AZ, was and is grossly overbuilt. And a lot of the jobs available in LV end up being temporary gigs.

The grass is not always greener on the other side of the fence.

[all]

[quote=bearishgurl]desmond, I don’t think paramount needs to worry about whether the property he’s selling is his “official residence,” or not. Any Pigg tax people correct me if I’m wrong, but he would have to make a least a $250K profit upon sale over the price he paid for each house in order to need an “official residence.”
[/quote]
You are wrong.

[(former)FormerSanDiegan]

[quote=all][quote=bearishgurl]desmond, I don’t think paramount needs to worry about whether the property he’s selling is his “official residence,” or not. Any Pigg tax people correct me if I’m wrong, but he would have to make a least a $250K profit upon sale over the price he paid for each house in order to need an “official residence.”
[/quote]
You are wrong.[/quote]

I second that. Completely wrong.

If you sell a property that is not your primary residence you will owe taxes on any gain.

If you sell a property that is your current residence, but previously was a rental you will owe some taxes as well, based on a prorated percentage of how much time it was not your primary residence (as of 2009, when the law changed).

The best summary of the tax laws involved that I have found are here:

http://firstexchange.com/March2012Newsletter

Beware other sources of info that were written before the 2009 law took place.

[bearishgurl]

[quote=FormerSanDiegan][quote=all][quote=bearishgurl]desmond, I don’t think paramount needs to worry about whether the property he’s selling is his “official residence,” or not. Any Pigg tax people correct me if I’m wrong, but he would have to make a least a $250K profit upon sale over the price he paid for each house in order to need an “official residence.”
[/quote]
You are wrong.[/quote]

I second that. Completely wrong.

If you sell a property that is not your primary residence you will owe taxes on any gain.

If you sell a property that is your current residence, but previously was a rental you will owe some taxes as well, based on a prorated percentage of how much time it was not your primary residence (as of 2009, when the law changed).

The best summary of the tax laws involved that I have found are here:

http://firstexchange.com/March2012Newsletter

Beware other sources of info that were written before the 2009 law took place.[/quote]

FSD, thanks for the clarification. I am not a tax preparer and have read the link you provided: Here is an excerpt:

…Another important exception is that property that is first used as a primary residence and later converted to investment property is not affected by these restrictions on excluding gain. For example, if you own and live in a house for 18 years and then you move out and rent the house for two years before selling it, you can receive the full amount of the exclusion. Because your investment use occurred after the last day of use as a primary residence, all of the gain accumulated over your 20 year ownership of the property can be excluded, up to $250,000, or $500,000 for married couples…

Of course, the OP would have to tell us, but I think his situation meets the exception described above. From my memory of his prior posts, I don’t think his rental house has been in service very long (1-2 years??). Before renting it out, it was his principal residence.

If I’m reading this paragraph right, the OP won’t have to pay capital gains on any portion of proceeds he nets from sale because his rental house hasn’t been in service long enough.

Is this your understanding of this exception?

paramount, how long has it been since you moved into your new primary residence and how long have tenants occupied your old house (if the answer to the 2nd question makes a difference)?

FSD, if paramount is coming up upon, say, 3 years since he turned his old house into a rental, what should he do here if he wanted to sell at least one house and avoid capital gains tax?

[UCGal]

Paramount…. just wanted to offer empathy and commiseration. Me employer will get my 4th corporate entity in just a few years, this week due to split ups, and acquisitions…. each transaction has involved significant RIFs. Our latest buyer is leveraging so much that significant layoffs are inevitable in the near term.

You’re smart to be preparing…. if it happens you’ll be more ready… if you survive you’ll be in a good place financially.

Good luck to you in surviving the inevitable rifs.

[CA renter]

Keeping my fingers crossed for you, too, UCGal.

Have your in-laws moved back yet, or are you renting the guest house out? At least that can bring in some extra income for you guys. It sounds like a nice place.

Good luck!

[(former)FormerSanDiegan]

[quote=bearishgurl]
Of course, the OP would have to tell us, but I think his situation meets the exception described above. From my memory of his prior posts, I don’t think his rental house has been in service very long (1-2 years??). Before renting it out, it was his principal residence.

If I’m reading this paragraph right, the OP won’t have to pay capital gains on any portion of proceeds he nets from sale because his rental house hasn’t been in service long enough.

Is this your understanding of this exception?

paramount, how long has it been since you moved into your new primary residence and how long have tenants occupied your old house (if the answer to the 2nd question makes a difference)?

FSD, if paramount is coming up upon, say, 3 years since he turned his old house into a rental, what should he do here if he wanted to sell at least one house and avoid capital gains tax?[/quote]

My understanding is that if used as a primary residence first, before converting to a rental, the exclusion applies.. BUT they would still owe taxes on depreciation recapture. They would be taxed on the part of the gain equal to the amount of depreciation they took (or were supposed to take) while it was a rental property. Depreciation recapture tax can be up to 25 %.

Bottom line … if it was used as a rental any time after 2009 you’ll taxes of some sort on some portion of some gains.

Also, note that these rules have changed at least a couple times over the last decade.

[SD Realtor]

Funny FSD I was talking to my CPA about all of this stuff. The rules have tightened up considerably. No more outs for income property owners who try to jump back and forth. Good way to earn an audit. As you said those laws have changed considerably.

[paramount]

[quote=bearishgurl]
Of course, the OP would have to tell us, but I think his situation meets the exception described above. From my memory of his prior posts, I don’t think his rental house has been in service very long (1-2 years??). Before renting it out, it was his principal residence.

If I’m reading this paragraph right, the OP won’t have to pay capital gains on any portion of proceeds he nets from sale because his rental house hasn’t been in service long enough.

Is this your understanding of this exception?

paramount, how long has it been since you moved into your new primary residence and how long have tenants occupied your old house (if the answer to the 2nd question makes a difference)?

[/quote]

It will be 2 years in July since the house was placed on the market as a rental, my problem down the road is that I have taken the depreciation on my taxes as a deduction.

[SD Realtor]

Paramount don’t fret to much. Even if you did not depreciate the property (I believe) the govt still recaptures depreciation! Pretty crazy huh? Anyways if you do sell it you will be taxed on the depreciation recapture, however the money saved on taxes over the years you did depreciate it tends to match or exceed that. Also if you have gains on the sale from a pure cost basis standpoint (forget about the depreciation recapture for a moment) then you can write those gains off against any capital losses you may be carrying forward. If you don’t have any and you have to pay taxes on gains and recapture that is not the worst thing in the world is it?

The other option to avoid it all is to 1031 it but that probably doesn’t work for you. If you think the sky is going to fall then bail out altogether. Personally I would hold the property, even if you do move out of the state.

[barnaby33]

I tend to think of this as a bifurcated recovery. Oddly enough Paramount, IT seems to be doing quite well so I’m not sure what your fear is, employment wise.

As to a recovery, the higher you were on the socio-economic ladder, the more recovery there has been. For those at the bottom it’s pretty much only gotten worse. Where you draw the break-even line is a good question though and I’d draw it at me!
Josh

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