Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Old 06-18-2007, 05:13 AM   #21
Thinks s/he gets paid by the post
tryan's Avatar
Join Date: Mar 2005
Posts: 2,471
I'ld say there's no better time to unload this one ... prices are at an all time high and TAXES are at an all time low. Wait until the Dems have the Whitehouse (and house n'senate too) and taxes will only get worse. AMT will be an issue but holding out for a "fix" is futile.

The only thing that trumps the $$ is having a place for your daughter. Young adults will have a heck of a time buying in HI going forward. Only you can answer that one.
FIRE'd since 2005
tryan 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 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 06-30-2007, 03:12 PM   #22
Moderator Emeritus
Nords's Avatar
Join Date: Dec 2002
Location: Oahu
Posts: 26,785
Well that was painful but I think I've addressed all the questions. Here's what I've learned.

Sales are running hot in our neighborhood, so a 29-year-old 4BR 2BA 1800 sq ft home on a 5400 sq ft lot would sell for about $650K. (The county even repaved the street last month.) With nothing to lose and no rush to close we'd FSBO next April-- just as the season heats up.

This is a long-term rental property and our other income puts us at the top of the 15% tax bracket so federal long-term cap gains would also be taxed at 15%.

Depreciation recapture is taxed at 25%. Total depreciation through the end of 2007 will be ~$57K.

I can't find any evidence that Hawaii taxes depreciation but I'd appreciate it if any of you Hawaii veterans can point me to a reference.

Hawaii long-term cap gains tax is 7.25%.

Federal AMT is triggered. I have no freakin' idea how it's determined but the TurboTax website estimator puts it around $7500.

We sold a CA condo in 1989 and deferred taxes on the cap gains by applying them to the purchase of the Hawaii home (which is now a rental). This old tax rule went away in 1997 but it still applies to the sale of the Hawaii home. We're required to reduce the basis of the Hawaii home by the amount of the cap gains deferral. Our 1989 IRS Form 2119 (Sale of Home) lists that amount as ~$28K.

Tweaking our basis numbers (and subtracting the CA condo cap gains from the basis) gives us a sale basis of ~$330K.

Assuming a $650K sale and subtracting the $2000 in FSBO closing costs, the $330K basis, and the $57K depreciation leaves cap gains of $261K.

Taxes are roughly $39K federal cap gains, $19K Hawaii cap gains, and $14K depreciation recapture. Adding in the AMT gives a total tax of ~$80K.

This calculation is also complicated by the AGI's phase-out of deductions & exemptions but AMT will probably stay below $10K unless the sale price really zooms up. We can reduce a bit of the taxes by skipping a Roth IRA conversion and not making any charitable donations that year, so let's leave the house sale's total tax impact at a conservative $80K. I doubt it'd be higher.

So after running a $650K buyer's check through the title company's escrow, the mortgage company, and our tax returns, we'd bank $650K - $2K - $135K - $80K = $433K. $66K is the price we'd pay by not moving into the rental property for two years in order to avoid cap gains taxes. (I doubt we'd escape depreciation recapture!) The moving expenses (and the colossal hassle factor) make this a non-starter; I can nurse a lot of tax pain while I'm looking at that deposit slip. And oh yeah, a 5% CD would cough up $1800/month.

The tenants asked us this week if they could start a childcare business out of the home. ("Uhm, NO!! thanks for asking, let me check the homeowner's association rules and I'll get back to you.") With my pension, this unexpected windfall, and their requests I've lost all of my landlording ambition. Now we'll go over the spreadsheet with my spouse and see how she feels about those phone calls...

Did I miss anything?

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
Nords is offline   Reply With Quote

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
Question for rental property owners Sue J Other topics 3 06-07-2007 08:42 AM
Rental Property: Buy for cash flow, or for appreciation? bearkeley FIRE and Money 8 04-20-2006 02:23 PM
Advantages/Disadvantages of rental property? military spouse FIRE and Money 52 01-26-2006 07:17 PM
could use advice on the rental house Caroline FIRE and Money 10 07-26-2005 05:20 PM
Rental property rent raises Toejam Other topics 12 03-09-2005 05:48 AM

» Quick Links

All times are GMT -6. The time now is 04:47 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.