Selling 2 Bed Room Attached Condo @Portola Springs (Possibilities)?

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dream16

New member
Guys,

I am thinking about selling the 1614 sq.ft  tri-level condo i bought last year. Some things i want to know before i would want to go through the ordeal are:

1. As per real-estate IRS rules, any property sold within 1st two years of its purchase will NOT incur any taxes on the sales price?

Example: i bought it for 550k and now sell it for 600k, then the whole amount remains non-taxable?

2. Considering IR inventory is at an all time low & in the neighborhood i bought, all new units are pre-sold out, i feel that it may be the right time for me to sell. The 1250sq. ft condo's now in there are being sold for 560ish.

3. What other scenarios do i have to consider other than 6% (selling costs)? I am not looking to make a huge profit out of this, somewhere north of 25-30k ++ would be nice to have.

4. The bigger question still remains unanswered for me about what i would do with the cash once sold, as market is at an all time high to buy right now & i am not into stocks/mutual funds etc. To let it stale in accounts doesn't look like a smart viable choice. I am still visioning 2019 to be my year for the 1M or 900k single family home purchase.

5. Would keeping it as rental at 3.75 interest rate make more sense than selling? My original plan has been to keep it as-is and bring additional money for SFR purchase in 2019.  8)

6. I just paid a monster $9000k property tax bill for the full year, so i am still not sure how much would IRS give back to me considering i would certainly claim all mortgage interest i paid along with rental agent commission i paid to get it rented out etc. Would being a military household give us any special tax benefits?

Thank You all for your insights
 
What is this IRS rule you are talking about?

You have to recapture your depreciation and pay cap gains. There is no if you sell within x time frame you don't have to pay taxes AFAIK. There is a rule if you sell a primary residence you get up to $500K for married/$250K for single taxpayers cap gains tax free if you sell after owning it for two years. I think there might be some rule if you sell less than two years to get part of that amt tax free but not sure what the rules are for that.
 
With regard to selling costs, 6% seems rare these days. Most commonly I see 5%, 2.5% split to each side. If selling agent reps the buyer, then it's 4% total. I would even try to negotiate a commission structure that increases if it sells above list and decreases if it sells below. Just more alignment for the client's goals.

I think there's a lot of value being a resale when the sales center is sold out. There are always people who like the development and floor plans, but rule out the project due to the fact they need to wait 6-9 months for delivery. If you can close 30-60 days, you'll have buyers.

Tax write-offs for property tax and mortgage interest are HUGE (unless you get hit by AMT). I wouldn't sell unless you are prepared to purchase another primary residence. Letting the money sit with no write-offs is going to hurt your bottom line.
 
Ready2Downsize said:
What is this IRS rule you are talking about?

You have to recapture your depreciation and pay cap gains. There is no if you sell within x time frame you don't have to pay taxes AFAIK. There is a rule if you sell a primary residence you get up to $500K for married/$250K for single taxpayers cap gains tax free if you sell after owning it for two years. I think there might be some rule if you sell less than two years to get part of that amt tax free but not sure what the rules are for that.
Click to expand...

Purposely didn't comment on this...will let the CPA's comment. The only rule I know is owning 5 years, and living in it at least 2 years will get the 250k/500k exemption. Not aware of a 'less than 2 rule.' There are a bunch of potential exceptions too...like job change, military deployment, health, divorce, etc.
 
best_potsticker_in_town said:
With regard to selling costs, 6% seems rare these days. Most commonly I see 5%, 2.5% split to each side. If selling agent reps the buyer, then it's 4% total. I would even try to negotiate a commission structure that increases if it sells above list and decreases if it sells below. Just more alignment for the client's goals.

I think there's a lot of value being a resale when the sales center is sold out. There are always people who like the development and floor plans, but rule out the project due to the fact they need to wait 6-9 months for delivery. If you can close 30-60 days, you'll have buyers.

Tax write-offs for property tax and mortgage interest are HUGE (unless you get hit by AMT). I wouldn't sell unless you are prepared to purchase another primary residence. Letting the money sit with no write-offs is going to hurt your bottom line.
Click to expand...

Thank you, can you please educate me on how AMT works, based on my google, it is Alternative Minimum Tax (AMT). If someone earns less than 200,000$, then they are not hit by AMT? I tried to dig deeper herehttp://money.howstuffworks.com/personal-finance/personal-income-taxes/alternative-minimum-tax3.htm

But anyone here who can explain it simply in a few lines, would help.
 
dream16 said:
best_potsticker_in_town said:
With regard to selling costs, 6% seems rare these days. Most commonly I see 5%, 2.5% split to each side. If selling agent reps the buyer, then it's 4% total. I would even try to negotiate a commission structure that increases if it sells above list and decreases if it sells below. Just more alignment for the client's goals.

I think there's a lot of value being a resale when the sales center is sold out. There are always people who like the development and floor plans, but rule out the project due to the fact they need to wait 6-9 months for delivery. If you can close 30-60 days, you'll have buyers.

Tax write-offs for property tax and mortgage interest are HUGE (unless you get hit by AMT). I wouldn't sell unless you are prepared to purchase another primary residence. Letting the money sit with no write-offs is going to hurt your bottom line.
Click to expand...

Thank you, can you please educate me on how AMT works, based on my google, it is Alternative Minimum Tax (AMT). If someone earns less than 200,000$, then they are not hit by AMT? I tried to dig deeper herehttp://money.howstuffworks.com/personal-finance/personal-income-taxes/alternative-minimum-tax3.htm

But anyone here who can explain it simply in a few lines, would help.
Click to expand...

The purpose of AMT is to ensure that taxpayers with excessive deductions (write-offs) still have to pay a "minimum tax." The 30,000 ft view of whether this applies to you...if you make six-figure income and have considerably high itemized deductions (kids + prop tax + state income tax + depreciation + business expenses + etc), you should be concerned. Unless something has changed significantly for you, if you didn't pay it last year you probably won't pay it this year.
 
Depends on your income and which particular deductions you have. You have to figure your taxes again with the AMT to see if you get hit.

Trump wants to get rid of it.
 
If you make a gain on an investment property, you will pay capital gains tax + depreciation recapture.  I've never heard of a 2 year rule.  The only 2 year rule is for a primary residence (2 out of 5). 

It's a simple math question.  Do the math on what you are losing every month by renting it out and what your net gain will be minus taxes if you sell.  Also you will need to factor in your equity (down payment  + appreciation) in your property and assess a opportunity cost to this amount if you continue to rent it out.
 
best_potsticker_in_town said:
dream16 said:
best_potsticker_in_town said:
With regard to selling costs, 6% seems rare these days. Most commonly I see 5%, 2.5% split to each side. If selling agent reps the buyer, then it's 4% total. I would even try to negotiate a commission structure that increases if it sells above list and decreases if it sells below. Just more alignment for the client's goals.

I think there's a lot of value being a resale when the sales center is sold out. There are always people who like the development and floor plans, but rule out the project due to the fact they need to wait 6-9 months for delivery. If you can close 30-60 days, you'll have buyers.

Tax write-offs for property tax and mortgage interest are HUGE (unless you get hit by AMT). I wouldn't sell unless you are prepared to purchase another primary residence. Letting the money sit with no write-offs is going to hurt your bottom line.
Click to expand...

Thank you, can you please educate me on how AMT works, based on my google, it is Alternative Minimum Tax (AMT). If someone earns less than 200,000$, then they are not hit by AMT? I tried to dig deeper herehttp://money.howstuffworks.com/personal-finance/personal-income-taxes/alternative-minimum-tax3.htm

But anyone here who can explain it simply in a few lines, would help.
Click to expand...

The purpose of AMT is to ensure that taxpayers with excessive deductions (write-offs) still have to pay a "minimum tax." The 30,000 ft view of whether this applies to you...if you make six-figure income and have considerably high itemized deductions (kids + prop tax + state income tax + depreciation + business expenses + etc), you should be concerned. Unless something has changed significantly for you, if you didn't pay it last year you probably won't pay it this year.
Click to expand...

But i just became a homeowner last year and only now i will get a reality check for the 1st time by filing taxes after owning a property.  6 figure yes, and the other options will end up as yes as well (no kids), so i am concerned.
 
dream16 said:
But i just became a homeowner last year and only now i will get a reality check for the 1st time by filing taxes after owning a property.  6 figure yes, and the other options will end up as yes as well (no kids), so i am concerned.
Click to expand...

I doubt you'll hit AMT with those numbers unless you have some unusually high deductions.
 
best_potsticker_in_town said:
With regard to selling costs, 6% seems rare these days. Most commonly I see 5%, 2.5% split to each side. If selling agent reps the buyer, then it's 4% total. I would even try to negotiate a commission structure that increases if it sells above list and decreases if it sells below. Just more alignment for the client's goals.
Click to expand...

Funny that you mention that because that's how I've been structuring my listing agent commission from the start.  I call it the "pay for performance" model. :D
 
We have never gotten hit. Somehow we barely miss it every year. It all depends on your deductions.

But not getting hit is no great prize........ it means u paid "enough" taxes. AMT is so you pay "enough" in taxes (they take away deductions which of course is also no prize).

We do our own taxes so seeing AMT go away is fantastic. It means we only have to figure our taxes one time.
 
dream16 said:
6. I just paid a monster $9000k property tax bill for the full year, so i am still not sure how much would IRS give back to me considering i would certainly claim all mortgage interest i paid along with rental agent commission i paid to get it rented out etc.
Click to expand...

if you paid a monstrous $9000k property tax, or $9 million, yes I think you will be hit with the AMT.
 
The California Court Company said:
dream16 said:
6. I just paid a monster $9000k property tax bill for the full year, so i am still not sure how much would IRS give back to me considering i would certainly claim all mortgage interest i paid along with rental agent commission i paid to get it rented out etc.
Click to expand...

if you paid a monstrous $9000k property tax, or $9 million, yes I think you will be hit with the AMT.
Click to expand...

I am sorry for the typo, i paid 9k property tax
 
The California Court Company said:
dream16 said:
6. I just paid a monster $9000k property tax bill for the full year, so i am still not sure how much would IRS give back to me considering i would certainly claim all mortgage interest i paid along with rental agent commission i paid to get it rented out etc.
Click to expand...

if you paid a monstrous $9000k property tax, or $9 million, yes I think you will be hit with the AMT.
Click to expand...
How much of the $9M property tax is mello? ;)
 
dream16 said:
best_potsticker_in_town said:
dream16 said:
best_potsticker_in_town said:
With regard to selling costs, 6% seems rare these days. Most commonly I see 5%, 2.5% split to each side. If selling agent reps the buyer, then it's 4% total. I would even try to negotiate a commission structure that increases if it sells above list and decreases if it sells below. Just more alignment for the client's goals.

I think there's a lot of value being a resale when the sales center is sold out. There are always people who like the development and floor plans, but rule out the project due to the fact they need to wait 6-9 months for delivery. If you can close 30-60 days, you'll have buyers.

Tax write-offs for property tax and mortgage interest are HUGE (unless you get hit by AMT). I wouldn't sell unless you are prepared to purchase another primary residence. Letting the money sit with no write-offs is going to hurt your bottom line.
Click to expand...

Thank you, can you please educate me on how AMT works, based on my google, it is Alternative Minimum Tax (AMT). If someone earns less than 200,000$, then they are not hit by AMT? I tried to dig deeper herehttp://money.howstuffworks.com/personal-finance/personal-income-taxes/alternative-minimum-tax3.htm

But anyone here who can explain it simply in a few lines, would help.
Click to expand...

The purpose of AMT is to ensure that taxpayers with excessive deductions (write-offs) still have to pay a "minimum tax." The 30,000 ft view of whether this applies to you...if you make six-figure income and have considerably high itemized deductions (kids + prop tax + state income tax + depreciation + business expenses + etc), you should be concerned. Unless something has changed significantly for you, if you didn't pay it last year you probably won't pay it this year.
Click to expand...

But i just became a homeowner last year and only now i will get a reality check for the 1st time by filing taxes after owning a property.  6 figure yes, and the other options will end up as yes as well (no kids), so i am concerned.
Click to expand...

If I were you, I'd contact a CPA...if you have all your info, you should get a pretty good answer about your tax liability in under an hour. Personally, I don't think you should have an issue. My annual income is in the $100k-$200k range (base + bonus + RSU/ESPP plans) and I deduct interest/tax for my primary residence (~$20k combined) and then additional "business loss" from my investment property. I have never paid AMT.

If I remember correctly, this is an investment property for you. If so, you're going to have to pay capital gain and depreciation recapture. If this was your primary residence (or you can establish that it is)...you'd have an outside shot of leveraging an exception so you can avoid some cap gain tax. Another question to bring up to your CPA.

That said, I really don't think your gain is going to be that much...likely a wash. Capital Gain = sale price (final sale price - commission - closing costs) - cost basis (purchase price + closing fees + improvements). $50k gain is your estimate, but after factoring realtors commission, closing cost (on buy and sell side), and improvements - you're not going to make much.
 
USCTrojanCPA said:
best_potsticker_in_town said:
With regard to selling costs, 6% seems rare these days. Most commonly I see 5%, 2.5% split to each side. If selling agent reps the buyer, then it's 4% total. I would even try to negotiate a commission structure that increases if it sells above list and decreases if it sells below. Just more alignment for the client's goals.
Click to expand...

Funny that you mention that because that's how I've been structuring my listing agent commission from the start.  I call it the "pay for performance" model. :D
Click to expand...

;) I would only work w/ an Agent that offers this structure. Consider the scenario of listing a home for $525k. If the home is realistically valued at $510k and a low-ball offer comes in at $500k...under a traditional commission structure most Agents aren't going to fight for an extra $10k for you - that's only $250 more in commission for them. I'd never want to be in that position as a seller - but the caveat here is you have to listen to the agent's expertise on list price and not let emotion get in the way.
 
If you can afford to keep it in the long run and it is positively cash flowing then keep it as a rental and have some cash flow.

If you really need the $ and it will help you get the house of your dreams, then dump it.
 
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