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Posted by siasiaa on April 9, 2007, 2:12 am
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We bought a house in San Diego, CA four years ago for
$875,000 and spent about $25,000 on it. It's in a
high-demand area 1 block from the beach.
Last year, we moved about 20 miles away for personal reasons
and will probably end up staying there for many years. We
didn't buy the 2nd house, we're paying rent. The 1st house
is being rented out, covering the mortgage payments.
We're now considering selling the 1st house (the appraisal
is 1.3M, the real estate representatives says it's
reasonable to list for 1.5M)
I'm married with 2 kids, the house is under my name only.
I'd like to keep the 1st house as an investment, but we
wouldn't have the money to buy our main house. We feel
uneasy continuing to rent worring about the lease term
ending, etc. I think we could find a good house in this new
neighborhood for about $900,000.
Any recommendations for strategies for buying, selling,
renting based on the latest tax and real estate laws?
Thanks in advance.
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Posted by Bill on April 10, 2007, 9:28 am
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siasiaa@gmail.com posted:
> We bought a house in San Diego, CA four
> years ago for $875,000 and spent about
> $25,000 on it. It's in a high-demand area 1
> block from the beach.
> Last year, we moved about 20 miles away for
> personal reasons and will probably end up
> staying there for many years. We didn't buy
> the 2nd house, we're paying rent. The 1st
> house is being rented out, covering the
> mortgage payments.
A [barely] timely moment to have these thoughts: You should
consult a tax professional _promptly_. The rental of your
former main home is a Schedule E issue, involving
depreciation and many other factors.
> We're now considering selling the 1st house
> (the appraisal is 1.3M, the real estate
> representatives says it's reasonable to list for
> 1.5M)
> I'm married with 2 kids, the house is under my
> name only.
As you're married, and you stated "We" bought the former main home 4
years ago ... as far as IRS is concerned, you can file jointly and the
first $500,000 of profit from selling that home will be free of tax.
IOW, if you sold it for $1.374 Million (for a profit of $499,000), you
would owe -0- tax.
However, that situation is changing, even as you read this,
since you're earning income from the vacant home -- and
depreciation issues have begun to accrue. That's why it is
urgent that you contact a CA tax professional ASAP.
For the former main home itself, the Federal tax break
covers up to $500,000 for MFJ, and is available if you lived
in that home for "2 of the last 5 years." As you can see,
depending on what _month_ of last year you moved out ... you
may be approaching an important point in time. On the
surface, though, it seems you could still take advantage of
the "main home exclusion" for another couple of years.
Again, _get thee to a tax pro_!
> I'd like to keep the 1st house as an
> investment, but we wouldn't have the money
> to buy our main house. We feel uneasy
> continuing to rent worring about the lease term
> ending, etc. I think we could find a good house
> in this new neighborhood for about $900,000.
>
> Any recommendations for strategies for
> buying, selling, renting based on the latest tax
> and real estate laws?
You're definitely at an appropriate moment to consider how
desirable it would be to use the "main-home" profit
exclusion _before it expires_, and that would seem to
suggest itself as a unique opportunity to amass roughly
$500,000 in liquid assets, with no (federal) tax obligation.
Did I mention seeking advice from a tax pro? ;-)
Bill
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Dick Adams on April 10, 2007, 9:28 am
Please log in for more thread options siasiaa@gmail.com posted:
> We bought a house in San Diego, CA four years ago
> for $875,000 and spent about $25,000 on it. It's
> in a high-demand area 1 block from the beach.
>
> Last year, we moved about 20 miles away for personal
> reasons and will probably end up staying there for
> many years. We didn't buy the 2nd house, we're
> paying rent. The 1st house is being rented out,
> covering the mortgage payments.
>
> We're now considering selling the 1st house (the
> appraisal is 1.3M, the real estate representatives
> says it's reasonable to list for 1.5M). I'm married
> with 2 kids, the house is under my name only.
>
> I'd like to keep the 1st house as an investment, but
> we wouldn't have the money to buy our main house. We
> feel uneasy continuing to rent worring about the
> lease term ending, etc. I think we could find a good
> house in this new neighborhood for about $900,000.
>
> Any recommendations for strategies for buying,
> selling, renting based on the latest tax and real
> estate laws?
My presumption is you weren't married when you purchased the
first house. Even without knowledge CA law, it's difficult
to imagine a lender allowing a married person to be the sole
owner.
Off-the=top of my head, there are four advantages to keeping
the first home are (I believe) the property taxes are fixed,
you have not maxed out on the $500,000 exemption, you can
move back in if the tenant leaves, and your depreciation is
covering a large portion of your rent.
(Given basis = $875k + $25k = $900K and Commission = 7%,
to calcualte $500k max out sale price use the following
(Basis + $500k) / (1 - Commission)) + Closing-Costs).
With zero closing costs (1,400K / .93) = $1,505,377. My
opinion would be to continue to rent until you find a buyer
at $1.6 million.
But then I know lees than 2% of your financial situation and
nothing about your professional situation. So my opinion is
less than a 2% solution and you need a 100% solution. But
the math is correct (I think). ;)
For the kind of money we're discussing, you need a local tax
professional who has a solid reputation as a tax planner.
That means a CPA, and Enrolled Agent, or a tax attorney. It
does not mean a seasonal tax preparer.
Your children will appreciate living in a house more if they
have can recall living in an apartment.
Before you make any decisions, see one of the above-mentioned
tax professionals.
Dick
P.S.: Stop right now and start looking for that tax pro!
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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