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What to do with $75k from sell of rental home
Old 09-29-2019, 02:44 PM   #1
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What to do with $75k from sell of rental home

Hi all,

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

I donít 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?

Iíve also thought about using the $75k to put towards a down payment on a vacation condo at the beach that weíd use to rent out?

I guess the big question is do I pay off the HELOC or not? Thx
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Old 09-29-2019, 02:54 PM   #2
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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.
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Old 09-29-2019, 03:06 PM   #3
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Have you see aside money for taxes on that profit?
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Old 09-29-2019, 03:09 PM   #4
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[QUOTE=ivinsfan;2303917]Have you see aside money for taxes on that profit?[/

I shouldnít have to pay capital gains, as Iíve lived in it two of the last 5 yrs.
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Old 09-29-2019, 03:14 PM   #5
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[QUOTE=moneymaker;2303919]
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Have you see aside money for taxes on that profit?[/

I shouldnít have to pay capital gains, as Iíve 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?
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Old 09-29-2019, 03:20 PM   #6
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I did for 2 1/2 yrs
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Old 09-29-2019, 03:27 PM   #7
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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.
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Old 09-29-2019, 03:34 PM   #8
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I just did same. Paid pof another loan which was at 4.5% in my case.
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Old 09-29-2019, 04:02 PM   #9
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Have you see aside money for taxes on that profit?
I shouldnít have to pay capital gains, as Iíve 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.
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Old 09-29-2019, 04:17 PM   #10
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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 wouldnít worry about future or past exclusions.
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Old 09-29-2019, 04:28 PM   #11
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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?
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Old 09-29-2019, 05:14 PM   #12
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I'd pay off the HELOC.
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Old 09-29-2019, 05:18 PM   #13
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Donít 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.
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Old 10-01-2019, 09:32 PM   #14
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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.
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Old 10-01-2019, 09:58 PM   #15
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Donít 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%.
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Old 10-01-2019, 10:14 PM   #16
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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.
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What to do with $75k from sell of rental home
Old 10-02-2019, 06:47 AM   #17
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What to do with $75k from sell of rental home

Quote:
Originally Posted by Farrell View Post
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
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Old 10-02-2019, 07:02 AM   #18
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Pay off the HELOC from the sale of your "rental".
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Old 10-02-2019, 07:12 AM   #19
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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.
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Old 10-02-2019, 07:27 AM   #20
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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.
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