What to do with $75k from sell of rental home

[moneymaker]

Hi all,

Just sold a rental home I had and am contemplating what to do with the $75k I’m walking away with. I have a HELOC on another home at 5.75% interest rate with a balance of roughly $80k that I’m contemplating using the $75k to pay off the HELOC.

I don’t have any other debt. But would it make sense to pay off a HELOC with a 5.75% rate or just keep paying the minimum on it and invest the $75k in the s&P 500 index fund?

I’ve also thought about using the $75k to put towards a down payment on a vacation condo at the beach that we’d use to rent out?

I guess the big question is do I pay off the HELOC or not? Thx

 

[calmloki]

We went with paying off higher interest loans on our rentals back decades ago - gal discovered a program called Zilch way back when that pointed out just what a difference paying off loan early can do. Paying off the HELOC is like getting a guaranteed 5.75% investment. That's pretty darn good. Otherwise, maybe consider EBSB FCU or Discover or Ally or Cit banks at 2% or so and liquid.

 

[ivinsfan]

Have you see aside money for taxes on that profit?

 

[moneymaker]

Have you see aside money for taxes on that profit?[/

I shouldn’t have to pay capital gains, as I’ve lived in it two of the last 5 yrs.

 

[aja8888]

Have you see aside money for taxes on that profit?[/

I shouldn’t have to pay capital gains, as I’ve lived in it two of the last 5 yrs.

So it wasn't a "rental" that you took depreciation expense on and deducted expenses along the way?

 

[moneymaker]

I did for 2 1/2 yrs

 

[38Chevy454]

I did for 2 1/2 yrs

Taking the depreciation reduces your cost basis. But you may still avoid the cap gains if you are using the personal residence $500K tax exemption (for a couple). Just remember that whatever cap gains you saved on the rental sale will go against your $500K lifetime total. So the current house will have less available in the future.


Back to your original question, i would probably pay off the HELOC, as suggested that is guaranteed 5.75% return.

 

[pjigar]

I just did same. Paid pof another loan which was at 4.5% in my case.

 

[Senator]

Have you see aside money for taxes on that profit?

I shouldn’t have to pay capital gains, as I’ve lived in it two of the last 5 yrs.

You still owe a pro-rated portion. Once you rent it out, you do not get 100% of the capital gains exclusion.

If you rented for 2.5 years, and lived here for 2.5 years, 50% of the capital gains are taxed. Along with depreciation recapture.

 

[RetireBy90]

Taking the depreciation reduces your cost basis. But you may still avoid the cap gains if you are using the personal residence $500K tax exemption (for a couple). Just remember that whatever cap gains you saved on the rental sale will go against your $500K lifetime total. So the current house will have less available in the future.

Seems that IRS pub 523 says you can only take the $500K exclusion once In a 2 year period, so I wouldn’t worry about future or past exclusions.

 

[moneymaker]

Don’t need advice on the taxes....

Sounds like paying off the $80k balance on the HELOC is the way to go, esp at 5.75%.

Any other advice on what to do with the $75k, any other investment vehicles to redeploy the money?

 

[SnowballCamper]

I'd pay off the HELOC.

 

[ivinsfan]

Don’t need advice on the taxes....

Sounds like paying off the $80k balance on the HELOC is the way to go, esp at 5.75%.

Any other advice on what to do with the $75k, any other investment vehicles to redeploy the money?

I'm sure your tax guy will take care of that for you. You just don't want to be caught short as tax time.

 

[Farrell]

Paying off the heloc is the same as earning 5.75 on your 75k but as a lifelong real estate investor I can't help to suggest a 1031 exchange in to another quality rental with good numbers. It will likely outperform the heloc payoff by a good amount.

 

[pb4uski]

Don’t need advice on the taxes....

Sounds like paying off the $80k balance on the HELOC is the way to go, esp at 5.75%.

Any other advice on what to do with the $75k, any other investment vehicles to redeploy the money?

WADR, it sounds like you probably do need advice on taxes... if you rented it and then lived in it for a couple years then the gain may not be tax free.

But if you didn't need advice on taxes then I agree with you that paying off the HELOC is a good choice.... you'll save 5.75% which is the same as earning 5.75%.

 

[Senator]

WADR, it sounds like you probably do need advice on taxes... if you rented it and then lived in it for a couple years then the gain may not be tax free.

But if you didn't need advice on taxes then I agree with you that paying off the HELOC is a good choice.... you'll save 5.75% which is the same as earning 5.75%.

From what I see, he owes taxes on at least 50% of the gains, if he lived there for 2 of the last 4.5 years.

I would pay off the HELOC too.

 

[nancyfrank232]

Paying off the heloc is the same as earning 5.75 on your 75k but as a lifelong real estate investor I can't help to suggest a 1031 exchange in to another quality rental with good numbers. It will likely outperform the heloc payoff by a good amount.

I like this idea for capital preservation, capital growth and tax deferral

 

[SmallCityDave]

Pay off the HELOC from the sale of your "rental".

 

[pb4uski]

From what I see, he owes taxes on at least 50% of the gains, if he lived there for 2 of the last 4.5 years.

I would pay off the HELOC too.

I'm not sure that it works based on time... for example, if it was his long-time personal residence and he converted it to a rental and sold it after 2 1/2 years as a rental, then as I recall, then when he converts it the basis is reset to the FMV as of the conversion date and depreciation is based on that reset basis... so me complicated than just time.... something like that anyway.

 

[Z3Dreamer]

I will respect OP wishes and only deal with payoff of HELOC. Yes. Do it today.

The advice on a 1031 is sound but I am no longer willing to be a landlord. It is too much like w**k.

 

[jkern]

You still owe a pro-rated portion. Once you rent it out, you do not get 100% of the capital gains exclusion.

If you rented for 2.5 years, and lived here for 2.5 years, 50% of the capital gains are taxed. Along with depreciation recapture.

The pro-rated Section 121 exclusion only applies if the house started as a rental. If the house was initially your primary residence and then you rented it out, you would still get the full exclusion (assuming you meet the 2 of last 5 year rule for primary residence).

 

[nancyfrank232]

The advice on a 1031 is sound but I am no longer willing to be a landlord. It is too much like w**k.

All due respect, but as a Canadian who has been a US landlord for the last decade, anyone who feels that being a landlord is work, is doing it horribly wrong

 

[johncasey37]

I have been thru this a few times. I always payoff something that is costing me monthly. Like other Mortgages or HELOCs. I do not like monthly payments at all...LOL.

 

[Mr. Tightwad]

All due respect, but as a Canadian who has been a US landlord for the last decade, anyone who feels that being a landlord is work, is doing it horribly wrong

I agree. Many here have negative thoughts on the landlord life. I have had a bad day or two.

But I have homes that have appreciated as much as 500%. I quit work at 45. All because I bought 4 homes between age 26 and 35.

If I hired a gardener I would spend 5 minutes a month on my rentals. But for now I do my own upkeep.

As far as the OP, I paid off my last mortgage 12 years ago. Nothing like taking the rent checks and depositing it and not being sure how you are going to spend all that money.