Hi All, I’m going to be selling a duplex soon. I’ve owned it for 13 years. Bought it for $52k. Over the years I’ve probably stuck $10k into it. However if you add up my yearly tax deductions (we live 8 hours from the property so we write off the trips, gas, mileage, etc.) it probably totals $20k. It will sell for about $90k.
Any rough guesses at what my tax liability will be? How do you compute it?
Thanks!
– Rob
Replies
My guess is that as a business you will be taxed for any capital gains you reap for the sale. Those gains would be the net after all you have paid and spent on the property while you have owned it.
I'm afraid that tax could be high in the 20% catagory.
Hi All, I'm going to be selling a duplex soon. I've owned it for 13 years. Bought it for $52k. Over the years I've probably stuck $10k into it. However if you add up my yearly tax deductions (we live 8 hours from the property so we write off the trips, gas, mileage, etc.) it probably totals $20k. It will sell for about $90k.
Your yearly tax deductions fall into 2 categories: expenses and capital improvements. Expenses are deducted straight away, against current income, while capital expenses are depreciated over time. A new roof over 27.5 years, new carpet over 10 years, etc.
Also each year, you should have depreciated the building (not the land) which is one of the benefits of owning a rental. This is done over 27.5 years.
When you sell and make your large pile of money, Uncle Sam treats different parts of the gain differently. The amount you depreciated over the years gets taxed at 27%, I believe, while the rest of the gain gets taxed at 15 or 20%.
If you're going to continue to own rental property, using the proceeds of this sale as the downpayment on your next property, you should look into doing a tax deferred exchange. Here is a firm that deals with this manuever. Basically, you transfer your property to a third party who then sells it to your buyer; this third party then buys the new property you have chosen and transfers it to you. You have 45 days to identify the new property, and 180 days to complete the sale. It has to be "like kind" i.e. housing for housing, and your intent at the time of the transaction must be to continue renting.
The purchase price of the new property has to be larger than the sale price of the old building, regardless of the capital gain you may or may not have made. If the new building is lower in price, the difference is called the "boot" and you are liable for CG tax on this.
Marine Engineer
M.E., I'll check these folks out...just in case. Do you happen to know a) if they'll work on such a small transaction and b) what their typical fee is per deal? It might be cost prohibitive for me to do this by the time I factor in the costs.
Thanks, Rob
Do you happen to know a) if they'll work on such a small transaction and b) what their typical fee is per deal? It might be cost prohibitive for me to do this by the time I factor in the costs.
I can't vouch for this firm, I just used it as an example.
I just sold a rental myself, looked into the 1031 exchange, but decided to bite the bullet and pay the tax; want to get out of the landlording milieu. The fellow I talked to said his firms' fee was $850, regardless of the cost of the properties.
Call them and talk to someone, they should be able to answer your questions, no obligations incurred.
Marine Engineer
ME, that $850 would probably sound about right. I think the last time I was researching it, I looked at Mid-Ohio (bought out by Equity Trust). Try midoh.com an they were in that ballpark.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Ok, we're now thinking about the 1031 exchange - you guys might have changed my mind. A question...is it possible to exchange a duplex for a cottage (2nd home)? Or does it have to be a duplex for another rental property?
Thanks, Rob
Stroke, you can exchange your investment property (the duplex) for any other investment property (resort, single family, raw land, apts, etc). Special rules apply if the replacement property is owned by relatives.
1031's aren't particularly new, complicated and they shouldn't be expensive. Shop around for rates, but stick with well established companies. Most local title companies will provide a "facillitator", usually because the big dogs (Chicago Title, etc) have entered into the business using subsidiries.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Stroke, I'd hustle my butt to a competent real estate accountant before I structured the offer.
The rules governing real estate accounting are complex. Your ownership goes back 13 years and in that time, there have been several changes to the tax code, so you might have some weird calculations to do.
Generally speaking, your gain will be taxed as a long term capital gains, which is good, since the top rate is now 15%. You will have to recapture the depreciation. That will be taxed as ordinary income and will be taxed at a higher rate...whatever your tax rate is now. Most of us pay 28%.
I dont' know if you will have to pay the 13% self employment tax (fica), on that recapture but you might.
Of course, if you intend to use the proceeds to re-invest in some different investment property, you could always avoid all the taxes and simply do a 1031 tax exchange. Most major title companies now have programs to assist you to properly handle the details of the exchange.
Get some professional advice before you sign any papers. I have a friend that sold some property that she held long term and the resulting tax consequences almost broke her! If she had competently thought out the entire process, she could have saved many, many thousands of dollars.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
What Engineer said plus;
Its called an electronic exchange, which you DO need to consult your accountant before you go to closing.
In my own words ; Rentals is a tax advantage deal. You reaped the benifits and if you sell a rental out right its time to pay up. You cant sell rentals , you end up giving them away unless you do an exchange. The second thing you can do is give them to your kids when you die. Thats about it . I never understood why someone would sell a rental out right they have held for a period of time.
Tim Mooney
Thanks everyone. To answer your question Tim...believe me, sometimes there are good reasons. :-) Generally I agree I should be doing the 1031 exchange but, at this time in our lives, the funds can be put to better use for us financially. The tax I'm going to pay on the difference is (hopefully if all goes well) a small price to pay both financially and emotionally in the long run. I'm going to set the amount aside in a CD and be prepared to pay Uncle Sam when the bill arrives.
Thanks again guys.
- Rob
just another thing to think about is you can take your 90k put it into the 1031 then when closing comes for the property you bought with the 1031 funds, you can take out a mortgage. example you have 90k ,you have to buy a property for at least 90,100. take out a 80% mortgage ,put 18,000 dn, close on the other property. you have approx 72k in pocket. just make sure you cash flow on new property. i've done a 1031 on commercial property to buy a lake house,now to make it qualify i had to put it on the weekly rental market, but hey works great i now have a place at the lake, it brings in about 3,500 a year [which in no way gets close to + cash flow]get to write off utilitys, and trips for maint. downside to a 1031 you will pay taxes on it someday unless you die and leave it to someone. but in the meantime i'm working on some of uncle sams money. by the way call a title co. in your area, around here they sometimes charge 300. to do a 1031,sometimes not if they get both title policys. larry
hand me the chainsaw, i need to trim the casing just a hair.
Larry, be careful with that lakefront property. There are special rules that apply to lakefront investment property. Scrutinize the real estate tax laws. Be ready with the right answers when Uncle Sam calls.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Oh my... this could be ugly.... I'd like to see what a RE tax accountant says in the end. My numbers say... if you have been depriciating the property over the last 13 years... taking into account a tax savings per year of about $350.00 you'll owe somewhere around $26,500. Which means your ROI of $52,000 will reap you a negative $5,000. I hope your numbers are different then mine cause tying up 52 grand for 13 years and losing money in real estate really sucks in todays market.
Thats why I said you cant sell rental property. You can however borrow against it .
My mentor which is dead , said that to sell rental property , you would have to sell it for 3 times of what its worth after full depreciation.
I sure wouldnt exchange a lake house if it wasnt rented for real. Ive got a cabin and it aint on the rental fleet. Not even the commercial insurance policy.
be Mr Clean clean
Tim Mooney
Depriciation of rental property is the major downfall. Tax guys love saving you every little bit to get you a bigger refund today. Long term as a cheap property gains value this is a killer. I sold a property that was in the family for a few generations with a book value of 0, for over a million. You don't want to know the amount of the check Uncle Sugar wanted.
With a good Lawyer and accountant setting up a corporation to hold rentals, it is doable but if you own them personally and depriciate it, someone is giving you bad advice....
With a good Lawyer and accountant setting up a corporation to hold rentals, it is doable but if you own them personally and depriciate it, someone is giving you bad advice....
Youve got my attention . Keep typing please,............. The part about the corp being doable to sell rental property.
Tim Mooney
Tim, the tax laws are basically the same for corps or individuals regarding property depreciation schedules. A corp has some advantages regarding the setting up of fringe benefits, but I think that advantage is quickly disappearing too.
My head hurts too much to try to remember how the corps are best used, but I cant remember any advantages relating to depreciation schedules.
I'll gladly stand corrected if someone has some authoritive information.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Thats why I said you cant sell rental property. You can however borrow against it .
My mentor which is dead , said that to sell rental property , you would have to sell it for 3 times of what its worth after full depreciation.
I wish I had a mentor regarding real estate. I was very, very close back in the early 80's. I didn't understand it and I didn't have anyone in my network of friends or family that understood it. But I was very, very close. If only I knew then, what I know now.
Tim, your idea to borrow against it is a great way to get taxfree money out of a property. I guess I dont have to warn you about the possibility of default if you cannot pay the mortgage if you lose your income. Then you can 1031 it, and defer the taxable gain if you decide to sell it. The new property gets a new basis and you get to start the depreciation again!
And you know what the really, really nice thing is? When you die, the heirs get to start all over again WITH A STEPPED UP BASIS! There isn't a better tax shelter out there.
Well, maybe the use of a Roth IRA to hold property.....
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Well the reason I dont understand anyone selling rental property that has two qualifiers;
Its fully rent produceing
Its been depreciated in half
From the old mentor that died this month.
Theres three legs of owning rental property.
One is getting it and being able to hold it comfortably. Thats the hardest part .
Second is the duration of paying for it and working it through the years. Thats the second hardest part because you make some money off of it for you troubles.
Third is retirement of the note. The easiest part of all. You get all the money it generates . You can sit on your butt and hire the work done and afford to retire your self, because all the money comes to you. It doesnt get any easiar than that !
Thats what HE said . Now to the properties I have half paid for and over ;
Theres a midway point of his second leg that theres a definate price increase by that time . 3.1 percent x 7.5 years of appreciation of prices. People been getting pay increases all that time . When I bought my first rental 12 years ago , I was getting 11 cents a ft for drywall finishing. Its running .27 cents now. Some other prices have beat that in trade work. Anyway people are noew making more money and rents have had a nice raise too. Thats over and above what I owe per month so now its partial retirement if I want it . The point of course being , Im enjoying it now with the good income . How can you sell an income for the rest of your life sitting on your butt? How do you affix a price for that property? You ran the race pulling at your guts and yer headed fer home in the lead , down hill . No one is gonna buy that from me . I want the finish line too. My dream is that any given morning my biggest problem is where Im gonna fish that day , not bitching about what SS pays or cant pay anymore. Im hoping I wont give a rats butt.
Tim Mooney
Tim, I think you're on track to get what you want. You're working the rental business hard enough from what I can tell.
Why don't you cash it all in for some triple net commercial stuff?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
oh yeh commercial , it's called risk and reward. you ever drive by one of those 40,000 stores that has sat empty for 7 years, i often wonder what the guy that owns that is doing, granted when it's leased it's payday,when it's empty i'd probably have to get my bed and tv and call it home. every time i get close to one of those deals my toes get reall y cold! but in hindsight i drive by 2 -50,000 sf shopping centers every day, that i just couldn't muster the b lls for and just shake my head. 10 yr notes,wouldn't made a nickel,free and clear now and i'd be trying to figure out how to carry the money to the bank. hindsight ,it's great anit it. larry hand me the chainsaw, i need to trim the casing just a hair.
"Why don't you cash it all in for some triple net commercial stuff?"
A couple of reasons .
One we dont have any that I can tell. Were so poor here that we cut holes in the kids pockets so theyll have somthing to play with.
Besides being very poor , the rentals we have seem to be hit or miss sometimes. Theres some shaking going on and some of it is shaking down. Walmart left a shopping center here and now all the windows in the surrounding stores are soaped! Piggly Wiggly shut down last week after the new super center walmart ran them off selling groceries. They built the new store where no one can build beside them. There was a mini malll that was built across the street and a Hardees, but thats it . 6 business across the street total. Walmart shut down a 26 unit mall where they left. Small shops that werent rooted. Then Piggy pulled out. Commercial landlords are scared to death to raise already cheap rents for fear they will lose there tennant. The town has been pulled three different directions in new buildings being built and theres plenty for rent . That would scare me to death. My houses rent in one week normally. Im lucky.
Tim Mooney
Ouch, sounds bleak.
Are they giving away the commercial property yet? It must be cheap to buy.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Well the James gang own all the big mall including piggy. They own all walmart property here. Its not for sale. Most commercial property that I know of is owned by old money. They will normally have 6 to 12 buildings each. Theres no telling how many the one that died had , but his is some of the nicest in town too. Those people are probably running 70 percent on average. They arent hurting and they are rooted to wait it out.
If I owned their property , I wouldnt sell it either . To me theres no price to put on it. If you can afford it , its the best stuff I know to own.
Risking being redundant ; What investment could a person have that brings back the kind of return and doesnt diminish it self? IN fact it grows in value all by its self without adding money to do it.
I guess I should pay attention to it anyway.
Tim Mooney
Any Canadians watching this thread? If so, any advice / places to go for forums about Canadian tax / rental property discussions?
Geo, according to my mis-calculations, the total tax bill will be $12,116. I've calculated it like this. Theres 13 of 29.5 years to recapture against the original 52k basis. That is taxed at 28%. There's a long term capital gain of 38k taxed at 15%. The 38k gain can be adjusted downward by subtracting any additional adjustments to the basis, which I've ignored for purposes of this little exercise.
I'm glad you're not my CPA.
Incidently, you slammed real estate as a poor investment, becasue of the ROI, yet you never even knew how much of his own money he put into the equation. It's not unthinkable that he bought this property years ago and got a check at the closing! You don't know how much cash flow this investment generated over the entire 13 year duration. You've decided that it's a poor investment without knowing any pertinent facts.
I'm going to guess that this property provided a positive cashflow for many years. Additionally, the 22k depreciation effectively sheltered $6,160 over the years that could have been invested in the same stocks that you would suggest, all the while earning interest, dividends and essentially growing. Now, the $6,160 will have to be returned to the government, interest free, and all the growth can be kept.
I'm wondering if your stocks do that for you?
Incidently, I had to fire my last year's CPA. Some of his errors might be my fault, at this point I'm not sure, but I really don't care. He's the professional and he's the one that's supposed to know my business and ask me the right questions.
A warning to all you guys out there. Don't depend on your lawyers and CPA's to be as thoughtful about your business as you would like them to be. Unless you employ them full time, you better be watching your own back or you're tossing a lot of money away.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
i'm curious about any hiccups you see in owning a cabin through a 1031. about the only one i know of is you can't personally use it for more than 10 days a year[maybe it's 14].i hate to admit this but with a millon things going on anymore i could only dream of 2 weeks at the lake! but if lets say i've been their my alloted time,i live 300 miles away [nice deduction for mileage] and the yard needs mowed and the toliet is running etc. i wouldn't apply that to my 10 days, thats a service call-even though i might take a dip in the lake when i was done mowing!!! one of the post you mentioned that you would start a new basis over on a 1031. i don't think thats correct, lets say you have property deppeciated to 25k, sell it for 200k,do a 1031 and buy another property for 210k. your basis is 25k from orig. plus 10k on the purchse for a total of 35k to depriciate.because if you decide to cash out next week for 210k, uncle s wants tax on 175k,you only defer taxes on a 1031. just a question have you ever done a reverse 1031 or know anyone that has? i've read on them and they sound interesting but a little tuff to do. larryhand me the chainsaw, i need to trim the casing just a hair.
Larry, you may very well be right about the depreciation. I've never done a 1031. I was half way through one and the deal collapsed. I most likely will do one with the property that I'm selling now.
You are correct about that 2 week limit on the resort property and that was what I was reffering to.. I'm guessing that staying there to do work would not violate the tax laws, but maybe you need to create some paperwork (invoices to your other company) to justify you being there.
Im not sure what you mean about reverse 1031, I've never heard the term. i don't think you can 1031 with any property that you own.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
a reverse 1031 is where you find the replacement property first, a third party closes on it [ i'm not sure how you fund the purchase,wheter you are making a mortage to the third party or what] then sell your property and bring the other one in as your replacement. you can search the internet and do a little reading on it, but it's a little more complicated than a 1031. but i hate that 45 day window on a 1031,seems like when i'm in that 45 days real estate goes up in value! lol i have been through 2 goverment condemnations and they are great as far as locating replacement property,gives you plenty of time. larryhand me the chainsaw, i need to trim the casing just a hair.
Man oh man I'm glad I found this discussion board a year ago. :-) You guys are good!
Ok, I don't think it really matters if the tax bill is $12k or $28k either one absolutely sucks. So what's spinning around in my head is...now what. I live in s.e. Michigan and the duplex is in another state. Frankly my life is so darn busy that I don't know I really want another duplex or 4-plex to manage (unclog a toilet at midnight? not anymore thank you) and, even though buying a cottage sound idyllic I don't know how realistic it is given the hours I work, our new house we're building, soccer games, birthday parties, karate classes, business trips, blah, blah, blah.
So assuming I do the 1031 "thing" what do you guys recommend from a lifestyle perspective? Should I seek out a resort-type place that handles everything from rental to maintenance (like a condo?; Blue...any specific ideas around Michigan?), a vacant lot in a hot market like an Asheville, NC? Help!?!?! Time is of the essence because the duplex will be fully vacant in a week.
Thanks all,
Rob
So assuming I do the 1031 "thing" what do you guys recommend from a lifestyle perspective? Should I seek out a resort-type place that handles everything from rental to maintenance (like a condo?; Blue...any specific ideas around Michigan?), a vacant lot ...
you gotta decide what you want to do. Do you still want to be a landlord? I'm taking the tax hit, declining on the 1031, in order to cease being a landlord. I'm buying a co-op in Manhattan and look forward to enjoying city living rather than evicting deadbeat tenants.
I spend 7 months a year at sea and the landlording thing was just too much for me to handle from the other side of an email connection in Japan. So I'm cashing out.
What do you want to do? Taking the tax hit to have the money without strings may be right for you. Or doing the 1031 for another, more convenient, closeby rental. Or maybe doing the owner financing thing. Or maybe something someone will suggest tonight/tomorrow/next week.
Marine Engineer
If push came to shove I'd do another rental in the area but it would have to be a "nice" place (vs. the "ok" place I rented out to 23 year old college girls in the other state...and no, it was nothing like Girls Gone Wild!); maybe something I could rent out to a family or "mature" folks versus the young pups. In my head though I'm thinking of some sort of resort-type place that would almost be like purchasing a hotel room. A couple quick concerns come up re: this, 1) how do we find it?, 2) given our schedule how do we check it out (can we really buy a place based on a 45 minute visit?), 3) can we trust the management, 4) will it appreciate?
But I sure like the idea of having a place that takes care of itself (if managed properly by the on-site staff) and of having a place I can take the family a couple times a year. So don't bother telling me about a cute cottage in Kentuck...I ain't driving down there twice/year! :-) But anywhere in a 200 mile radius of Ann Arbor is reasonable.
Are there any association websites for resort condos?
Thanks!
- Rob
Rob, I really can't offer you any advice on low priced lakefront rental property. We've listed our AuSable property for 559k, but I'm not sure you want to tack on a couple of thousand extra bucks per month to make that one fly.
I'm also in the final stages of offing some other vacant lakefront property, but it's a little more complicated and slightly more pricey too.
I just cant imagine finding any usuable lakefront cottage type property under 100k. If you find some, I'll buy it right now! Even the unbuildable lots are going for 55k and up. Are you thinking about doing some speculating on some low cost lake property? You could probably have a lot of fun with a big camper and boats on some property I know of in the 55k range.
Where are you located?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Well, well, well Blue...it sounds like you're a waterfront real estate tycoon, huh? Good for you!
I should probably clarify. I'm not necessarily looking to purchase the next piece of property for $40-$50k. I'd just like to roll over the profits from this place into the next one. But ideally I'd like to keep the next one <$250k. So if we bought a lake place I'd like it to be one that we rented out and somehow "someone" (i.e. not ME) took care of it. I remember when I used to go to my Aunt and Uncle's cottage "up north" in Wisconsin. I LOVED it. But now that I'm older all I can think about is how my Uncle busted his *ss every time I was up there. I don't ever recall him sitting around enjoying himself. I don't want that to be me. I have enough things to keep me busy.
So I'd consider a resort condo spot or perhaps a cottage that was somehow turned over to a property management company. But finding the place...that's a whole 'nother matter.
- Rob
i replied back a few post about having a lake place that we rent out. don't even start to kid yourself it's hassle free, couple items come to mind.. 1 yr old couch somebodys kid used for a hurdle jump,brought the weber grill from the yard and set it in the middle of a brand new deck [ i cemented it down after that!]and about ruin it. also watch out for management co. they can make you or break you. we had a great one ,then a so-so, finally we do it word of mouth-back to the hassle factor.don't let me sound too negative,it's great to go to your place for the weekend,but it's hard to make it cash flow and still be able to use it. if your looking for a investment,with a low hassle factor, you might look around for a condo/townhouse that has a lot of 50+ residents. i have one like that and it works real well. rents a little lower than should be , but they have been there 13 yrs and i expect they will be till they go to nursing home. as important as the property is the finacial strength of the homeowner association.if they are in the red it won't get any better.they take care of every thing from the outside walls on. my dues run about 450 a year for that. it's worth that to know i don't have to paint it. larryhand me the chainsaw, i need to trim the casing just a hair.
Larry, I haven't had any trouble with tenants ruining stuff, but I also don't like the commitment needed to make the thing work. I'm operating in a laketown that is filled with people that don't do much. I haven't been able to find a management company that is useful. That is the primary reason I'm selling. I want passive income. Triple net sounds great to me.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Rob, I don't know of anything like that right off hand. Once the season heats up a little, I'll be hanging around the water a little more.
My advice would be to make 100% sure that your investment cashflows and it really isn't that easy in the cold climates. Michigan's resort industry is suffering from the longer school years and longer winter breaks. The prime months used to be june, july and august, but nowadays, the school year cuts into june and starts in august. Fall sports practices start early in August and that is a very big factor.
I'd suggest this: use your cash to buy a solid income property that cashflows...maybe a couple of hundred per month. Then, use that extra cash, along with the cash that you saved by not having a negative cashflow and rent a place each year for three weeks. You'll enjoy it a lot more because you won't have to do any work. Also, rent a boat too.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Hi Blue, the trouble seems to be that everyone prices their investment properties so high that they DON'T cash flow. Particularly once you add in insurance, taxes and maintenance. If I do the 1031 flip I need to buy something quickly which doesn't allow me much time to shop.
I hear 'ya on the resort thing. Although when we spent time in Ludington (where I found some Lake Michigan waterfront condos for <$200k) I noticed a lot of baby-boomers renting up there. They should be good for the next 15-20 years...I hope. :-)
I'm still a long way from making up my mind as to what to do but I appreciate all the input.
- Rob
Rob, I'll agree, the "investment" properties that also qualify as second home/resort properties niormally carry an unusually high negative cashflow. I'm guessing that there are two primary reasons, both of which got me into mine: 1) the invetors are banking on appreciation i.e. "there's only so much lakefront property" 2) " i don't mind some negative cashflow, at least I get to enjoy my "investment" for a good portion of the year.
Resort property is volatile. It is speculative. It is risky. It is not for the beginner.
With that said, I know that if I hang onto my property, it could prove to be a very big winner...it could very well be enough to retire on, but I'm not waiting around. I also know that I can build a much more stable income using commercial or bread and butter residential income property. The resort thing might be fun, but it's not my cup of tea, unless it's in a warm climate.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Larry , now you got me wondering . Mebbe I dropped the ball on the cabin my self .
From my hunting dog training days I had to collect fees for my services rendered. On running a kennel , I showed dog sales . [mostly pups] I didnt do it but I could have declared a loss. I was happy to get food as a deduction.
If I actually rented my cabin part of the year it would qualify for my fleet insurance commercial plan, and be therefore a bonified rental taking on the tax shelter the rest do. I dont believe in fudging the system as its more than fair now. Just to get it qualified would be well worth it without trying to pile on deductions. Theres a need for weekend rentals here and we dont have hardly any.
I guess I need to schedule a trip to the accountant.
Tim Mooney
tim like i stated around here your not going to go out and buy a cabin ,rent it and make it cash flow,just isn't enough season,but if your going to own one anyhow might as well take as much advantage as possible. mine is down on beaver lake, in arkansas, im not sure how far you are or if your familer with the area, but rents for 125. a night usally about 30 days a summer, june-sept and in reality that just about pays for taxes ,ins,dues etc. but it lends itself to some pretty good write offs with the above mentioned items, mileage down there a couple times a year and so on. now when i get tired of it and sell i will have to 1031 it or pay uncle s a load. as far as renting yours i think you can rent a cabin for like 7-10 days a year and not have to show it. once you declare it as a rental you will be subject to capital gains when you sell. by the way where are you in ark? i'm in wichita so the cabins a fair little drive. larryhand me the chainsaw, i need to trim the casing just a hair.
"once you declare it as a rental you will be subject to capital gains when you sell. "Any and all property, personal and real, is subject to captial gains if it is sold at a profit.That includes your car, stock, and the cabin.The only exclusion homes that have been used as your personal residece for 2 out of the last 5 years.Whether you rent it or not has nothing to do with it.However, if you have rented and then convert to personal use for the 2 years there will be extra taxes on it. The recapture tax on the depreciation (which is 25%, not 28 for the depreciation sicne 1997). I dont' know if the capital gains have to be aportioned between the personal use and rental or not.
Thanks for that update Bill. I was tossing out that 28% rate thinking it was the normal rate that most people pay, but now that you mention it, I do remember (vaguely) that the rate differed. My eyes glazed over when I got into the real estate tax book.
I did just move into a chapter that is dealing with 1031's from the Closing Agent's point of view and read up a little on Larry's reverse exchange. My head starts hurting when I try to absorb this stuff in theory, without an actual deal cooking.
I was very surprised to read that there is such thing as an "IMPROVEMENT EXCHANGE". I actually think that I'll start a new thread about that, because it seems like it would have a very significant impact on builders.
I'll go start it now.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Ease that tax liability by owner-financing the sale. You can finance it over 15 years, usually at a point above what the mortgage companies are quoting. You're on the Security Deed at the courthouse - you can take the property back if need be.
Get enough down to be sure they have a vested interest in paying the note. Charge 'em 10% down, finance the remaining $81,000 at 6% for 15 years, you net $683.53 a month for 15 years, or a total of $123,035.40 in payments, plus the initial $9,000 down, for a total of $132,035.40. All on a house that you would sell today for $90,000.
Everyone's financial situation is different, but me, I'd jump on this. I had to foreclose on one of these several years ago, and I came out very much to the good. Look at it this way, you've been renting it out, accepting monthly rental income, but also responsible for the roof, the water heater, the clogged toilet. By owner-financing, you still get the monthly income, maybe more net $ since you won't be paying property taxes or insurance. You extend the tax burden over all those years, paying taxes on the interest income even into your (lower income) retirement years.
If you've got the right purchaser, this can be a very sweet deal.
Greg