an_ordinary_guy_158[at]hotmail.com (Bill) wrote:
- quote -

Was browsing past year's postings, and noticed this
situation.

Was wondering if a single owner should consider importing a
mail order bride to cash in on the extra $250K

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Ivan Erwin wrote:

- quote -

Since it is California, that strategy would probably double
the property tax rate. That might be an extra $3000 per
year.

That extra $3000 per year may be small compared to the
capital gains (or CA estate tax?) that your strategy avoids.

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LoTax wrote:

- quote -

Has the law changed? If so, when? I always thought that
the basis in an exchanged property was the basis in the old
property plus or minus any boot.

Also, you can always avoid a realtor commission if you "do
it yourself" but you miss the professional help in pricing
and negotiating a deal. And, in an exchange, you still have
to pay an intermediary to facilitate the transaction.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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DougB: What you *really* want to do is to sell your current
residence and then make the best reinvestment of the
proceeds of the sale you can. Others have explained why.
Residential rental property may or may not be the best
reinvestment opportunity.

An alternative is to trade - exchange or swap - your current
residence for another similar house which you then rent out
for the long term. The "gain" won't be taxed but you'll get
your tax basis stepped up to fair market value for purposes
of depreciation and later sale. And if you work the
exchange right- do it yourself - you won't have to pay a
realtor....

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"IMAFriend" <imafriend[at]sbcglobal.net> wrote:

- quote -


- quote -

Under CURRENT tax law you can sell and exclude the $500K
gain every two years (and one day?) Thus you could sell B in
2-20 years, exclude the gain, move back into A for two years
and then sell A.

However, the gain on A in 2-20 years may greatly exceed the
maximum exclusion (which may increase/decrease/disappear!)
You already have a gain of approx. $400K, after all.

Don't forget, two of us have suggested selling A now and if
you must, be a landlord/California real estate investor, buy
C for the approx. selling price of A. You lose some transaction
costs (our hearts bleed for your mis-fortune) but you pocket
the gain and the basis for C is about $680K rather than the
$280K of A.

Ivan

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"IMAFriend" <imafriend[at]sbcglobal.net> wrote:

- quote -

Possibly. The ultimate sale of A would qualify for the
exclusion, but you'd have taxable income equal to the
depreciation during the rental period.

--
Phil Marti
Clarksburg, MD

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Wow, some great responses. Thanks everyone.

First, I guess I was in err by referring to what I am
considering as 'roll over' I know something of the 500 tax
exclusion, and just was referring to that as a roll over.

Second, I am only moving about 30 miles away, so I would not
be a long distance landlord. I am moving into a bigger
house in a much better school district (We have a <3 year
old and a <1 year old. The house we are buying is a house
that can last us 20 years and has great elementary, middle
and high school. (Let's hope it stays like that for 20 more
years.)

(considerations and out-loud thinking)I also have thought
about trying to rent out for maybe another 2 years. Right
now is the slow season for real estate. If I kept the house
for half a year til the market picks up again, it would be
expensive but worth it if I could sell the house for 40k
more. (maybe). But on that same line of thought, if I keep
it for 2 1/2 years and rent it out that time, and then sell
it, it's even better. (end of considerations and out-loud
thinking)

Alan answered another question, I'm assuming he's right
cause he knows more than I do. My name is not on the title.
But I use this as my primary residence. My wife and I have
lived here married for 3+ years. We should be okay, it
sounds like.

Last question for now would be...
If we currently live in House A, we move into bigger House B
and rent out House A. Later, in 20 years (give or take 18
years) we sell House A and move back into House B for 2
years. House A was lived in 2 years prior to selling, and
then House A will be lived in for 2 years prior to selling.
Is this a way to be able to sell both houses in 20-22 years
with better tax advantages?

This is of course based on current tax laws, who knows what
will be in 20 years.

Again, thanks much for previous comments and any additional
comments you can give.

DougB

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The day you turn into a rental, a bunch of other tax
considerations come into effect. First you should get one
of those landlord advice books and look at the tax section.
Second you should get a written appraisal of the value at
rental conversion time, especially in rapidly changing
markets. The IRS might consider another price if you dont
pin it down.

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IMAFriend wrote:

- quote -

You are way behind the times as the tax benefit you
reference was repealed by a 1997 tax law. The new tax
benefit rule would allow you both to exclude $500,000 of
profit from the sale of your "main" home if you meet the
following rules for a joint return:

1. At least one of you owned the home for at least two years
out of five years when you look back from the closing date.

2. You both used the home as your main home for at least two
years out of the same look back period. (The two year
periods do not have to be consecutive nor contiguous.)
3. You are only allowed to use this exclusion once every two
years.

There are exceptions to the ownership and use two year rules
for unusual circumstances (job move, divorce, health, etc.).
There is no requirement to reinvest the proceeds in a new
home. You can spend the money any way you want.

You can get details and definitions of terms in IRS Pub 523.
http://www.irs.gov/publications/index.html

Finally, if you qualify for the full benefit, you don't even
have to report the sale on your tax return. The great state
of California conforms to this tax rule.

--
Alan
http://taxtopics.net

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IMAFriend wrote:

- quote -

First, take a deep breath. Better? You first need to
seperate factual advice from emotional discussion.

Today, you are permitted to sell your house and if you meet
the rules, having lived there in 2 of the last 5 years, you
may exclude $500K of gain. You are not near that limit. You
can rent it out and still take advantage of the rule, as
worded, for a few years, but if you don't sell, the
exemption from tax free gain evaporates. The 'roll over' you
recall is no longer, and has been replaced by this 500K tax
free gain rule. End of my factual reply, check IRS web sight
to confirm this is accurate.

Emotional rant - you want to risk a $700K house to tenants?
And you won't be nearby to go to check on routine
maintainance issues? All signs point to the real estate
market topping. I'm not suggesting a crash, just that, with
the FED doing its thing and rates rising, the gains you've
seen are best locked in, and the house sold. Could it really
rent for enough to cover the expenses, including the repairs
that come with a stranger living there, and simple things
that now require a professional? (ex - I once paid $100 to
get a plumber to light a match. Heater went out, tenant
called me, I knew it was the pilot, but I was too far away
to drive, so I had to call the plumber. You want this?) With
all due respect, take the advice of Woody Allen and Steve
Miller, Take the Money and Run.

JOE

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You may, because you are married, sell your home and keep up
to $500,000 without paying any income tax on the profit.
The rollover rule went out years ago. I would advise to
sell the house and if you wanted to, buy a house for rental
purposes in addition to your home where you will live.

Missy Doyle

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IMAFriend wrote:

- quote -

You should think about selling it.
Please read about Home Sale Exclusion Rules

http://www.irs.gov/newsroom/article/...105042,00.html

Go ahead and pocket the capital gains. You do not have to
roll it over into your next primary home, if you qualify.

If you want to come back to california, or have some
options, if your new situation does work out, then you may
want to consider keeping it.

Just a warning, being a long distance landlord is not an
easy task.

But, for tax reasons alone, you should think about selling
it.

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"IMAFriend" <imafriend[at]sbcglobal.net> wrote:

- quote -

#1 - Forget the "roll over" stuff. That ended in 1997!
Congress gave us something much better for almost everyone.
Prior to 1997, one just deferred the taxes. The only way to
permanently avoid eventually paying the taxes was to die.
Then your heirs might or might not have to pay them. Not
relevant now.

Keeping the house is a gamble on future value. You are
gambling with a lot of "chips." The housing "bubble" might
burst????

If you do keep it, you should rent it IMO. If you rent it,
you MUST depreciate it. When you sell it you would have to
"recapture" the the depreciation and pay taxes on that. Not
outlandish. Plus, you might do a 1031 exchange of a business
property and defer taxes. Can't do it with your own
residence.

Here's the biggy:

If you sell it and on the date of closing, the house has
been your primary residence for two out of the past five
years, you and your wife can totally exclude $500, 000 of
gain!

If it has been your continuous primary residence for two or
more years, you have three years to sell it and exclude the
$500,000 gain.

You could rent it for a time, sell within the three years
from the date you change primary residence and mainly only
pay tax on the depreciation and any gain over $500,000. Give
yourself time for unforseen problems to get the closing
accomplished within the limit! One day over would cost you a
ton.

Smart tax move IMO - since you are very near the $500,000
maximum gain exclusion, sell the house now.

If you are convinced that the house will continue to
appreciate, simply buy a very similar house and rent it.

Take the time now to read Publications 527 & 530 on
owning/selling your residence and residental rentals.

www.irs.gov

Ivan

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I'd suggest that you get with a tax preparer and go over the
options. There are important details missing that make a big
difference. How long have you owned and lived in the house
as your (both) primary residence. If 2 of the past 5 years
you and the wife can sell the place now and pocket all the
gain. If you rent it out, the longer you rent it the
greater the tax when you sell. At a point in time it will
jump big time when you loss the exclusion.

BC

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imafriend[at]sbcglobal.net (IMAFriend) posted:

- quote -

Well, let's start here: You are mistaken, and thinking of
the "old" rules, which changed many years ago. The new
rules permit you to keep up to $500,000 of profit -- without
any federal tax due -- if you're married filing jointly
($250,000 if single), and you've lived in your home for two
of the past five years. You will not be required to even
file a form; you simply pocket the profit and move on.

What's more, you could repeat this process after living two
years in your next primary home.

- quote -

If you convert it to a rental, after 3 years you will no
longer qualify for the federal tax break on sale of your
primary home ... and the cost basis would remain your
original investment (+ improvements), so you would be
forfeiting a valuable tax advantage.

Should you decide to keep this home as a rental property, I
would strongly advise you to contact a tax professional, who
could explain all of the consequences and tax provisions
which would apply.

- quote -

"Clueless" was a good choice <g> ... and I hope even this
brief response informs you that things have changed a lot,
from the old days. But you should probably be the one
laughing, because this is one case where the news was better
than you could have imagined. <smile
Bill

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IMAFriend wrote:

- quote -

As to your fifth request just above, with figures like
those, and assuming I could sell the house for current
value, I would take the money and run!

ChEAr$,
Harlan Lunsford, EA n LA

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"IMAFriend" <imafriend[at]sbcglobal.net> writes:

- quote -

That is *incorrect*. The rollover thing you're talking
about disappeared into the aether in 1997. The rule now
is much simpler:
If you own and occupy the home for any 24 months of
the 60 month interval ending on the date of sale,
a couple filing married jointly can exclude from tax
up to $500,000 of profit on the sale. If you miss
that threshold by even one day, the *entire* profit
is taxable, unless you meet one of the tests for
pro-rating the exclusion.

- quote -

Once it's been a rental property for at least three years,
you will flunk the 24 month test outlined above and the
whole $400,000 gain will be taxed (as a long-term capital
gain, i.e. at 15%). In addition (standard for residential
real estate), any allowable depreciation on the structure
while the property was a rental will be recaptured at 25%.

- quote -

It's previous life as your home has no effect on the taxes
paid on post-rental sale, unless the rental period was so
short that the exclusion still applies.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"IMAFriend" <imafriend[at]sbcglobal.net> wrote:

- quote -

Time to wake up, Rip. The law changed in 1997. However,
under current law you and your wife can exclude up to
$500,000 of gain on the sale of your primary residence if
you've owned and lived in it for 2 of the 5 years preceding
the sale. Your gain would evidently be less than $500,000.
Details are in IRS Publication 523.

- quote -

A lot is in the timing. Start with Pub 523 and Pub 527.

--
Phil Marti
Clarksburg, MD

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I'm clueless.

(What a way to start, huh?)

My wife and I have a home that we bought for approx $280k
and is now worth about $680k or more. This is in
California.

We are moving. From what I understand, we are fine if we
move into a new house, because of the roll over tax or the
fact that we are moving from primary residence into primary
residence.

My wife is talking about keeping the current house as a
rental property instead of selling it.

So what happens when we sell it? Do we have to pay
outrageous taxes because it was a rental? Do we have to pay
only moderate taxes because it was our primary residence
when we moved? Do we have to pay outrageous taxes no matter
what?

Any help, advice, info, warnings, or laughter are welcome
and hoped for.

Thanks!
DougB

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