Question for real estate investors

[BMF]

Did you 1031 to another property, I know from before you have an AIRBNB and other properties?
I'm looking to eliminate 1 or both of my rentals(over the next 1-3 years) because I just don't see them going more than another 3-5% in value(due to sqft and property size/location)before a downturn in value...One will be needing a roof and electrical/plumbing updates at minimum. The other is in good shape with 2 year old roof/AC and I am just finishing up new flooring, interior/exterior paint and a few other items, about 10K in total....

No, I just stuck the money into a brokerage account. Like you, I don't want to buy right now - market's too high. I sold at a good time, tenant moved out, and it was selling season (spring).

 

[78]

Cap is 15% on the difference after the 25% on the depreciation.....Were having this discussion because some people don't read the OP very well.....there is NO cash flow. In other words the monthly rent covers the monthly mortgage payment although it's on a 15 year fixed around $1500 on both....

Here's the thought process
Depreciation increases the tax burden the longer I hold because a higher percentage is taxed at 25% instead of 15% and if the market drops which it likely will in about 3 years or so I could get caught with a higher tax bill plus more likely more up keep expenses and a lower selling price....make sense?

If I take the proceeds now, after tax of course, I can soak bait in bonds/CD's for about as long as it takes the market to hit bottom and buy a similar house with about what I would have soaking....mark it up to a credit needy buyer without worring about appraisals and such and hold the mortgage at about 8-9%.....all without having my phone ring when something breaks...

Which leads me to the last reason.....I take care of 5 properties right now, my 2 rentals, my Wife's rental and our 2 commercial buildings....do you know how often sh!t goes wrong??? I'm getting tired of all that needs to be done and work at the same time. I don't like to admit it but at 55 Crete is starting to slow down.

Depreciation is not factored into NOI, hence not cap rate either.

@ Detroit. They’re illiquid Delaware Statutory Trust investments. Not short-term holds but they are effective for the right fit.

@ NV. Yes, a two-for-one 1031 is allowed by the IRS.

 

[Concrete Helmet]

Depreciation is not factored into NOI, hence not cap rate either.

Then how is taxable profit figured?....In other words if I bought for 129K and sell for 250K, owe 105K, BUT I have put another 25K(which has been written off over the years)plus written off the mortgage interest on a yearly basis....sorry but that doesn't sound right to me???
My understanding is the improvements are added to the original purchase price...129+25=154 divided by 27.5=5.6K X 13= 78X.025=19.5....250-154=96-78=18X.15=2,700 + 19.5=22,200 total taxes from 145K gross profit....

 

[78]

Then how is taxable profit figured?....In other words if I bought for 129K and sell for 250K, owe 105K, BUT I have put another 25K(which has been written off over the years)plus written off the mortgage interest on a yearly basis....sorry but that doesn't sound right to me???
My understanding is the improvements are added to the original purchase price...129+25=154 divided by 27.5=5.6K X 13= 78X.025=19.5....250-154=96-78=18X.15=2,700 + 19.5=22,200 total taxes from 145K gross profit....

You’re mixing up rate of return as measured by net operating income divided by asset value versus calculation of capital gains.

I see now why we haven’t connected. We’re talking about two different things.

 

[Concrete Helmet]

I'm only worried about NET profits.....the house is a loss on a yearly basis which I take a write off on...

 

[78]

I'm only worried about NET profits.....the house is a loss on a yearly basis which I take a write off on...

Why are using 25% as a tax calc on the 27.5 depreciation? It’s not taxed at the recapture level unless the depreciation exceeds the straight-line method.

 

[Concrete Helmet]

Why are using 25% as a tax calc on the 27.5 depreciation? It’s not taxed at the recapture level unless the depreciation exceeds the straight-line method.

Thanks that's what I was wanting to know....So in my formula extracting 145K profit I would just use straight 15%? Or would the taxes be taken from the new basis-154K minus the selling price-250=96K taxed at 15%?
Doesn't seem like the IRS would allow me to use the 25k improvements as a write off during the time owned and then give me a rate break on it when selling?

 

[78]

Thanks that's what I was wanting to know....So in my formula extracting 145K profit I would just use straight 15%? Or would the taxes be taken from the new basis-154K minus the selling price-250=96K taxed at 15%?
Doesn't seem like the IRS would allow me to use the 25k improvements as a write off during the time owned and then give me a rate break on it when selling?

Correct. Capital improvements are added to the basis. Annual running costs are deductible on Sked E.

As far as which rate, long-term capital gains are taxed at 15% or 20% depending on filing status and total income. Just Google it.

 

[Concrete Helmet]

Just Google it.

That what got me so confused to begin with...
I'll make an appointment with my grouchy old accountant next week....

 

[78]

That what got me so confused to begin with...
I'll make an appointment with my grouchy old accountant next week....

Here you go.

 

[Bushmaster]

Basis is figured at purchase price plus capitalized improvements less depr taken. You mentioned you wrote off what you capitalized.

Take a look at your depreciatin schedule on your 2018 tax return. That will get you close to your basis.

Subtract basis from purchase price and subtract selling expense / closing costs. This will give you net gain. The tax you pay on this is determined by several factors to include other taxable income and any depreciation recapture.

In your case since you are selling at a gain over purchase price plus improvements, the entire amount of depreciation taken is subject to depreciation recapture and you will pay tax at ordinary rates on that amount t and capital gain tax on the sales price less capitalized costs disregarding depreciation.