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Old 02-06-2023, 09:14 AM   #21
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Ya it's just about 4x'd in 33 years, with the extra $100k I put into it and other improvements that DW & I did. Maybe up 3x or so if you factor those in.
Northern CO has been a good place to own real estate -- my rental has gone up about 8%/yr.

I'm a fellow Iowa Stater BTW, EE/CprE '79.
I bet over 33 years you and ex-DW put more than $100k in improvements (not just maintenance & repairs) into that house.

Which will reduce any gains even more.
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Old 02-06-2023, 09:27 AM   #22
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You could always donate the taxable amount to your charity of choice. That would put it to good use and avoid any taxes.
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Old 02-06-2023, 09:44 AM   #23
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With few exceptions, (TLH being one) I've always felt it was a bad idea to make decisions based on taxes. Pay the tax, move on and be happy.

As someone noted above, the difference is about $38K over $500K in the pocket. Let it go and good luck.
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Old 02-06-2023, 09:51 AM   #24
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Since you mention the rental ... have you been reporting that income on your taxes and taking depreciation on that portion of the property? That makes your taxes on the sale a bit more complicated.
Oooh, good point. I don't think @ncbill's point about DW/my improvements is an issue, since my basis reset when I bought out her half. That's how my CPA showed it anyway. (I hope so! My records from 20-30 years ago are, ahh, spotty...)

But the depreciation for the rental, and for my home office (I've been self-employed and worked from home since 1991), will definitely have an impact. That'll increase the cap gains, about $30k or so I think, but it won't really change the decision.
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Old 02-06-2023, 10:01 AM   #25
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File this under, "I wish I had your problem". Lived in our current house for 20 years, it has appreciated 37% over what we paid for it and 23% more than what the original owners paid for it in 1998.
Ha, we must be neighbors. I think ours went up about 25% in 20 years
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Old 02-06-2023, 10:24 AM   #26
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Since you mention the rental ... have you been reporting that income on your taxes and taking depreciation on that portion of the property? That makes your taxes on the sale a bit more complicated.

I agree that you should sell. The tax hit is still going to be less than your the savings on expenses, but it's not quite as straightforward as pb4uski's estimate when you factor in that rental usage. If you're not comfortable with the section of IRS pub 523 that talks about gain/loss calcs when having a separate rental unit on the property, then you should plan to have a pro do your taxes for the year that you sell.
Fair point... I guess I read past the rental in the walk-out basement. Of course it depends on whether the OP has been using Schedule E or just his pocket.
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Old 02-06-2023, 11:29 AM   #27
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Ya it's just about 4x'd in 33 years, with the extra $100k I put into it and other improvements that DW & I did. Maybe up 3x or so if you factor those in.
Northern CO has been a good place to own real estate -- my rental has gone up about 8%/yr.

I'm a fellow Iowa Stater BTW, EE/CprE '79.

Were fellow staters, except mine is Illinois, BS Accounting '82
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Old 02-06-2023, 11:32 AM   #28
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Ha, we must be neighbors. I think ours went up about 25% in 20 years

yep, couple hours southwest
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Old 02-06-2023, 11:53 AM   #29
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Were fellow staters, except mine is Illinois, BS Accounting '82
Huh!! Didn't realize there was another ISU with a Cardinal (or at least Redbird that looks like a cardinal) mascot!
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Old 02-06-2023, 12:09 PM   #30
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Oooh, good point. I don't think @ncbill's point about DW/my improvements is an issue, since my basis reset when I bought out her half. That's how my CPA showed it anyway. (I hope so! My records from 20-30 years ago are, ahh, spotty...)

But the depreciation for the rental, and for my home office (I've been self-employed and worked from home since 1991), will definitely have an impact. That'll increase the cap gains, about $30k or so I think, but it won't really change the decision.
I'm not exactly sure how this works in a non-community property state like Colorado, but if you bought your ex's half of the property, wouldn't that only reset the basis on half of the house? I think your basis would be half the original cost plus whatever you paid your ex, plus half the improvement costs from the original purchase date, plus all the improvement costs since the date you bought out your ex. It's probably a good idea to have the same CPA do your taxes on the final sale if possible.

The depreciation recapture increases your ordinary income in the year of sale and decreases your cap gains. Basically the taxable profit is divided between depreciation recapture, which is taxed at your ordinary rate, but capped at 25%; and long term capital gains, which are taxed at LTCG rates.
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Old 02-06-2023, 12:45 PM   #31
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Would it work to lease the house, live where you want and they get the house when you die?
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Old 02-06-2023, 12:50 PM   #32
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I've only just started to look around, but the places I've seen are all rent-based.
Tons of 55+ places you buy your home. We’re in one now. This is not a CCRC or assisted living type place, just a 55+ development. HOA takes care of yard maintenance for you, and there are shared facilities (clubhouse, pool, gym etc.) and an active social calendar if you’re into that kind of thing. But no healthcare related services.
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Old 02-06-2023, 01:59 PM   #33
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Would it work to lease the house, live where you want and they get the house when you die?
Seems to me that would work but would introduce a lot of risk and hassle to avoid what is not much tax in the whole scheme of things.

Besides, would the kids prefer to inherit a house with a stepped up basis that they they have to either manage as a rental or sell or simple coin of the realm.

KISS... and just sell the house, pay the tax and move on.
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Old 02-06-2023, 02:10 PM   #34
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Hmmmm. I'm wondering about the rental aspect - not so much for the tax issue, but that it gives Gary the opportunity to rent a small place in a community for a year or so, and see how he likes it.
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Old 02-06-2023, 02:36 PM   #35
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I have heard (here and elsewhere) that it is rarely a good idea to base a financial move solely on tax avoidance. YMMV
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Old 02-10-2023, 03:31 PM   #36
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Valid point, @Koolau. I'm still considering options.

My CPA said the basis reset when I bought out ex-DW. Unfortunately I can't confirm that with him, since he went and died last year ... I'll have to check with the woman who took over his practice & client list.
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Old 02-10-2023, 03:53 PM   #37
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You're 66. Does it make any sense to carry this big house that you don't really want or need for another 15-25 years or more so they can get $38k more?

Sell it, pay the tax on the taxable gain and go on to enjoy the rest of your life.

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Exactly and the key number here is 66.
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Old 02-17-2023, 04:36 PM   #38
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Two points I always make to my clients:
1. Your first obligation is to YOU. The interests of those who may inherit are much less important.
2. Don't be afraid of capital gains taxes. They are payable only if you have capital gains. You get to keep 80-85% of them.
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Old 02-17-2023, 05:11 PM   #39
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File this under, "I wish I had your problem". Lived in our current house for 20 years, it has appreciated 37% over what we paid for it and 23% more than what the original owners paid for it in 1998.
My wife and I also sold a house without a lot of profit to show for 18 years of ownership.

The subtitle next to my name on another online forum is "Real Estate Skeptic".
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Old 02-17-2023, 05:24 PM   #40
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The subtitle next to my name on another online forum is "Real Estate Skeptic".
If you're in the right area, and have some semi-decent market timing luck, real estate appreciation can be super fast. I made $100K on a $90K condo in less than 5 years, made $20K on a $350K condo in one year, 'broke even' on two ~$300K condos held for 5 and 8 years, and my current property went up ~50% from $1M to $1.5 in just two years. Of course, the flip side is that real estate tends to go in cycles, regionally. Waiting for the interest rate hikes shoe to truly drop.
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