Sale Of Rental Property Question

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HybridHybrid Members  288WRX Points: 90Posts: 288 Greens
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My renters want to but my house. I have depreciated it for tax purposes. Since I can’t depreciate the land, how is that reconciled at sale time? I do not want to lose the land value.
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  • raynorfan1raynorfan1 Members  3862WRX Points: 391Posts: 3,862 Titanium Tees
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    You pay capital gains tax on your gain, which is the price the buyers pay minus transaction costs, minus your original purchase price, plus the sum of all the depreciation you’ve taken over time. Assuming no major capital improvements.
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  • KAndyManKAndyMan JUST GOTTA SEND IT!!! Trident/Lowcountry areaMembers  422WRX Points: 173Handicap: ManyPosts: 422 Greens
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    Pretty sure you can skip the capital gains tax if you reinvest the money (by another rental). Just find a great real estate lawyer preferably one that plays your game them self. If they are good they will make you much more than they cost.
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  • raynorfan1raynorfan1 Members  3862WRX Points: 391Posts: 3,862 Titanium Tees
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    KAndyMan wrote:
    <br />
    Pretty sure you can skip the capital gains tax if you reinvest the money (by another rental). Just find a great real estate lawyer preferably one that plays your game them self. If they are good they will make you much more than they cost.<br />
    <br />
    <br />
    You can do a 1031 exchange if you reinvest the proceeds in another investment property, and defer taxes until you eventually exit the investment.
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  • jerebear21jerebear21 Don't Go Left FLClubWRX  3430WRX Points: 268Handicap: 8.3Posts: 3,430 ClubWRX
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    raynorfan1 wrote:
    <br />
    KAndyMan wrote:
    <br />
    Pretty sure you can skip the capital gains tax if you reinvest the money (by another rental). Just find a great real estate lawyer preferably one that plays your game them self. If they are good they will make you much more than they cost.<br />
    <br />
    <br />
    You can do a 1031 exchange if you reinvest the proceeds in another investment property, and defer taxes until you eventually exit the investment.<br />
    <br />
    <br />
    if you need the cash, you keep the partial cap gains and pay tax on that(partial) while doing a 1031 exchange as well; there is a time limit though.
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  • HybridHybrid Members  288WRX Points: 90Posts: 288 Greens
    Joined:  edited Dec 5, 2018 #6
    Here is my concern. We bought a 1 acre lot and later built a house. The house is now a rental. Our renters want to buy the house. How can I separate the house, which I have depreciated from the land so I do not show capital gains? Do I need a separate agreement for the land?
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  • jerebear21jerebear21 Don't Go Left FLClubWRX  3430WRX Points: 268Handicap: 8.3Posts: 3,430 ClubWRX
    Joined:  edited Dec 5, 2018 #7
    are you trying to avoid tax on cap gains completely? it's not possible unless you do a 1031 flip. When you built the home, they should have done an appraisal and reset your property tax with the property. I don't get where you're going with this. Do you plan to sell the home and keep the lot?<br />
    <br />
    ok, I see what you're saying/done. I don't think there's ways around this bud. Partial cap gains + 1031 flip is what I would do.
    Posted:
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  • raynorfan1raynorfan1 Members  3862WRX Points: 391Posts: 3,862 Titanium Tees
    Joined:  edited Dec 5, 2018 #8
    Hybrid wrote:
    <br />
    Here is my concern. We bought a 1 acre lot and later built a house. The house is now a rental. Our renters want to buy the house. How can I separate the house, which I have depreciated from the land so I do not show capital gains? Do I need a separate agreement for the land?<br />
    <br />
    <br />
    You must have a basis number that you're using for depreciation, which should be the cost of building the house (plus capital improvements), not including the cost of the land (because the land is non depreciable). Unless you've owned the house for 27.5 years, it's not fully depreciated. One of the reasons that the IRS doesn't get super picky about the amount you depreciate is because they know they get most of it back on the cap gain.<br />
    <br />
    Your cap gains is the sale price that you get, net of transaction costs, minus the amount you paid for the land, minus the amount it cost you to build the house, plus the depreciation that you've taken.
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  • HybridHybrid Members  288WRX Points: 90Posts: 288 Greens
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    Thanks ray, that is exactly what I was referring to.
    Posted:

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