Sell rental to payoff mortgage?

[Wylie coyote]

Hi I've been laying low on this site for awhile now. I read posts on the regular. I would like opinions on what to do because im struggling to make a decision.Im planning on retiring at the end of 2020. I still owe 150k on my house. I have a condo that a tenant just moved out that I'm fixing up to rent or possibly sell and payoff my house. The rent from the condo will almost cover the mortgage. I've also thought of selling the house primary residence and moving to the condo for a couple years then sell to avoid capital gains tax. Or possibly keep as a part-time home and buy another place outside the city. I'll be 58 when I plan to retire my net worth is only 1.3 so I really need to get this right. I know this mostly comes down to personal choice but I'd appreciate advice. DW is 6yrs younger and will still be working for awhile. Anyone out there go through a similar situation? Thanks in advance!

 

[Bamaman]

You could go either way on this one--as there's no easy answer. Do you think you'll have any difficulties getting another tenant? And is the property in good shape right now?

If good tenants are easily found, you could continue with ownership of the property. But I've always thought that when one retires, it's a great peace of mind to have the main home paid in full. Since your wife still plans to work, you could sit on the property and rent it until closer to her retirement. Then sell it.

 

[cathy63]

I've also thought of selling the house primary residence and moving to the condo for a couple years then sell to avoid capital gains tax.

Cap gains exclusion doesn't work that way any more. Read this and plug in your own likely numbers to some of their scenarios to understand the exclusion rules better: https://www.merriman.com/wealth-pre...to-your-rental-in-the-future-read-this-first/

 

[Wylie coyote]

The rental is paid off , it's easily rented. I have enough liquid cash to pay off my primary residence but I like having that for just in case. I know it's dumb to keep paying the interest even at 3.375! Seems like the experts say to hold on to the rental for passive income. But I'm with you in retirement having no mortgage. Thanks

 

[Wylie coyote]

Thanks Cathy, interesting and confusing

 

[Wylie coyote]

Is I true that if your income is is low enough in the year that you sell (rental) that your cap gains is zero?

 

[Scrapr]

Is I true that if your income is is low enough in the year that you sell (rental) that your cap gains is zero?

Up to a point. But you will have Depreciation recapture...even if you did not take depreciation. Combined with other things on our tax return the sale of our rental pushed us into AMT. It was brutal

Maybe talk to a CPA/enrolled agent to see how it might affect your entire return?

 

[ERD50]

...I know it's dumb to keep paying the interest even at 3.375! ...

No, you don't know that. It's not dumb at all, especially if you are using up much of your liquidity to pay it off.

3.375 is not a bad rate. You may decide to pay it off, but not doing so definitely is not dumb, at least not in most cases.

Hi I've been laying low on this site for awhile now. I read posts on the regular.

If that's true, you should realize you just insulted a lot of long time posters! But that's OK, most of us have pretty thick skin. Welcome to the forum!

-ERD50

 

[Wylie coyote]

Well I guess I'm out of the closet then...lol Not meaning to offend anyone just been soaking up some knowledge. I try to learn as much as I can where I can. I guess I would chime in more if I had an educated opinion. It's a great site though ...thanks

 

[CaliKid]

No, you don't know that. It's not dumb at all, especially if you are using up much of your liquidity to pay it off.

3.375 is not a bad rate. You may decide to pay it off, but not doing so definitely is not dumb, at least not in most cases.



If that's true, you should realize you just insulted a lot of long time posters! But that's OK, most of us have pretty thick skin. Welcome to the forum!

-ERD50

Just so I don't make the similar offense what did the OP do wrong by saying they have been laying low but are still reading posts!? Me confused.

 

[Conundrum]

I sold my last rental unit in December 2018. My longtime CPA ran the numbers and we discussed options prior to making the decision. Capital gains and depreciation recapture was brutal but a year later I am still happy with the decision. Each situation is different but here are a few things that made it the right decision for me.

-I did not want to be a landlord when I retired.

-I wanted to be 100% debt free when I retired. This has always been a personal goal. A year later it still feels liberating.

-I wanted to have a good post tax cash cushion on hand heading into retirement.

-With no debt obligations I could live comfortably under 400% FPL annually which created opportunity for ACA subsidies.

Lower AGI typically leads to lower fed & state taxes. Again, no debt now and I am perfectly happy living at a lower annual gross. This was a positive byproduct.

Thats the high points. Hope it helps

 

[BeachOrCity]

What is your return on equity for the rental? (Calculated as gross income less all expenses and a maintenance reserve including a vacancy allowance divided by the value of the home less sales expenses (closing and commissions) )

Once you know this you can get better advice on how this rental compares to alternatives including paying down existing mortgage on your own home.