Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Selling Rental Property
Old 05-23-2018, 09:25 AM   #1
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 201
Selling Rental Property

I'm selling a Rental Property I own, and have a few questions. I've never sold a property before.


Should I hire a Real Estate Attorney to review the P and S agreement, as well as represent me at the closing? My Realtor says they charge $850-$1000, which I don't have a problem with, just checking that I should do this.


What other things should I be aware of?


Thanks.
__________________

Livefree is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-23-2018, 09:30 AM   #2
gone traveling
 
Join Date: Nov 2011
Location: The Deep South Bay
Posts: 744
The Cost of Depreciation When You Sell

When you sell your property, you must pay 25 percent recapture tax as well as regular state income tax on the depreciation you claimed. If you are in a higher tax bracket than the 25 percent bracket, the recapture tax is less than the income tax than you would have paid. Even if the recapture tax is the same as your income tax bracket, you still had the benefit of getting to use the money you saved for the years that you deducted it. In essence, it works out as getting an interest-free loan of the money from the government.
Avoiding Depreciation Recapture
Here's the beautiful thing -- you don't actually have to pay recapture tax. As long as you plan to reinvest the proceeds of the sale into more investment real estate, you can structure the transaction as a 1031 exchange.
__________________

97guns is offline   Reply With Quote
Rental Property Disposal Options
Old 05-23-2018, 09:56 AM   #3
Thinks s/he gets paid by the post
Huston55's Avatar
 
Join Date: Jul 2011
Location: The Bay Area
Posts: 2,503
Rental Property Disposal Options

Here are some options for you to consider. Suggest you do a NPV analysis for your situation, using the options you find attractive.

Methods for Optimum Income from Rental Property
__________________
You may be whatever you resolve to be.

100% x 10% > 10% x 100%
Huston55 is offline   Reply With Quote
Old 05-23-2018, 11:00 AM   #4
Full time employment: Posting here.
HawkeyeNFO's Avatar
 
Join Date: Jan 2010
Location: Inside the Beltway
Posts: 680
Quote:
Originally Posted by 97guns View Post
Here's the beautiful thing -- you don't actually have to pay recapture tax. As long as you plan to reinvest the proceeds of the sale into more investment real estate, you can structure the transaction as a 1031 exchange.
This oversimplifies it. A 1031 exchange has very specific requirements and rules to follow. Just having a "plan to reinvest the proceeds" is not enough to avoid the recapture tax.
HawkeyeNFO is offline   Reply With Quote
Old 05-23-2018, 12:10 PM   #5
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 201
I'm aware of the depreciation/capital gains I will pay. From a financial position, it makes more sense to keep it, but I'm tired of it, and have another rental that I will keep.


The house is paid for, and my accountant said if it sells for $600k I will net $470 as I"ve depreciated it for 15 years now. I will also have to pay back $12k in subsides (ACA Insurance)



The property never got to MLS and had a private showing last night that resulted in an offer of $680k which I'm excited about.
Livefree is offline   Reply With Quote
Old 05-23-2018, 12:33 PM   #6
Thinks s/he gets paid by the post
RobbieB's Avatar
 
Join Date: Mar 2016
Location: Central CA
Posts: 4,562
Woo-Hoo, an extra 80 grand -
__________________
Retired at 59 in 2014. Should have done it sooner but I worried too much.
RobbieB is online now   Reply With Quote
Old 05-23-2018, 12:42 PM   #7
Thinks s/he gets paid by the post
Cobra9777's Avatar
 
Join Date: Jul 2012
Location: Texas
Posts: 1,985
We sold a rental property last year. We had no attorney. Just a well-compensated realtor and title company. The transaction went very smooth. The tax part was a little complicated with TurboTax, but I managed it myself. We had a large gain on the sale but the hit from depreciation recapture was relatively minor in our case because we only owned the house for 4 years and all of the gain and recapture fell into the 15% bracket. It's not a flat 25%. It's a maximum special CG rate of 25%, which is taxed at ordinary income rates for taxpayers in lower brackets. I had to skip Roth conversions but managed to squeeze it into the 15% bracket. The size of the gain did push some of our QDs and LTCGs from 0% into 15% territory, but the overall hit was much more palatable than I was originally expecting.
__________________
Retired at 52 in July 2013. On to better things...
AA: 55% stock, 15% real estate, 27% bonds, 3% cash
WR: 2.7% SI: 2 pensions, some rental income, SS later
Cobra9777 is offline   Reply With Quote
Old 05-23-2018, 07:36 PM   #8
Recycles dryer sheets
 
Join Date: Nov 2017
Location: Raleigh/Charlotte
Posts: 95
Quote:
Originally Posted by Cobra9777 View Post
We had a large gain on the sale but the hit from depreciation recapture was relatively minor in our case because we only owned the house for 4 years and all of the gain and recapture fell into the 15% bracket. It's not a flat 25%. It's a maximum special CG rate of 25%, which is taxed at ordinary income rates for taxpayers in lower brackets.

We have a similar situation this year. We are selling a home that has significant depreciation while we expect to be a tax bracket lower than 25%.
I did not know that depreciation recapture rates could vary! Thank you for mentioning this.
Any further info on how to calculate would be much appreciated .
michelek is offline   Reply With Quote
Old 05-24-2018, 04:17 AM   #9
Thinks s/he gets paid by the post
Scrapr's Avatar
 
Join Date: May 2005
Location: Bend
Posts: 1,094
When we sold a rental a few years ago we had a fair amount of depreciation because we had 1031 into the duplex. The sale & recapture pushed us into AMT. So take a look there too

If I had it to do over I don't think I would have 1031 that deal. But that is hindsight. Also just missed being defrauded by the 1031 exchange company. They were doing some shady stuff I came to find out after. My realtor lost a good chunk of money with them when they went BK about a year later
Scrapr is offline   Reply With Quote
Old 05-24-2018, 07:30 AM   #10
Thinks s/he gets paid by the post
Cobra9777's Avatar
 
Join Date: Jul 2012
Location: Texas
Posts: 1,985
Quote:
Originally Posted by michelek View Post
We have a similar situation this year. We are selling a home that has significant depreciation while we expect to be a tax bracket lower than 25%.
I did not know that depreciation recapture rates could vary! Thank you for mentioning this.
Any further info on how to calculate would be much appreciated .
All I can suggest is that you become intimately familiar with the Schedule D tax worksheet. That's where the math takes place. The logic is a little difficult to decipher from the worksheet. So I recreated what was happening in an Excel spreadsheet just to verify my understanding. I initially worked through this middle of last year using a 2016 version of TurboTax Premier. With all the changes in 2018, I'm not sure how helpful the 2017 version will be, but that's still where I would start. Just do a pro-forma version of your 2018 return with the expected numbers from the sale, then start studying the Schedule D tax worksheet.
__________________
Retired at 52 in July 2013. On to better things...
AA: 55% stock, 15% real estate, 27% bonds, 3% cash
WR: 2.7% SI: 2 pensions, some rental income, SS later
Cobra9777 is offline   Reply With Quote
Old 05-24-2018, 09:25 AM   #11
Thinks s/he gets paid by the post
Souschef's Avatar
 
Join Date: Dec 2015
Location: Santa Paula
Posts: 2,556
I sold my rental a few years ago, using a Realtor.I used Turbotax to do all the work, including depreciation recapture.
Since I had a management company handling everything, it was easy to do my taxes.
__________________

__________________
Retired Jan 2009 Have not looked back.
AA 50/45/5 considering SS and pensions a SP annuity
WR 2% SI 2SS & 2 Pensions
Souschef is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Financing rental property and using property management services GreenER FIRE and Money 12 01-12-2015 09:00 PM
Selling vs. Renting a Property inquisitive FIRE and Money 11 12-25-2010 01:46 PM
Selling the rental property? Nords FIRE and Money 24 03-14-2009 09:49 PM
Renting or selling the rental property Nords FIRE and Money 21 06-30-2007 04:12 PM

» Quick Links

 
All times are GMT -6. The time now is 10:44 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×