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Selling Primary turned Rental for Tax gain or Keep it as is

Started by r2ichennai, February 26, 2019, 09:57:41 AM

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I have a property that I lived for 12 years and has been rented out for last 2 and half years. I am inclined to selling the property to take advantage of the 500K capital gain. I estimate the profit to be around 300K . Our market has peaked and is going down now. The rent to own ratio is pretty bad here for most properties but since I bought it low I am ok with it. I don't want to invest the profits back in stock or other but reinvest in a different rental property in around the same area as my stock expoure in networth is 70%. Is it worth taking the cap gains advantage now and reinvest (essentially paying transaction cost of 10% or keep the same one for life as a rental property). I know this tax gain is once in a life time opportunuty i dont want to miss.
I have only 6 more months to qualify for cap gains exclusion.

Bought for 343K
Estimated proceeds - 740K
Rent - 2600 per month
Mortgage PITI+HOA - 2450 (15 year mortgage at 2.625%)
Annual Property tax - 6400
Transaction cost - 10% (6% RE commission, 2% tax 2% for Misc)
Peaked to 820K last year, I might have to some work to spruce up the house to get to 750K (10K approx)
Tax bracket - 32% but this is long term capital gains for 15%

My options are
a) Sell take the gain and reinvest in a better rental (I prefer SFH) , If I luck out I might find something under 600 that can fetch 2600 in this area. so Rental yield is pretty low here
b) Sell take the gain and put back in my mortgage (primary)
c) Sell take the gain and wait for rental opportunity in 2  next years.
d) Sell and reinvest in back stock (which I dont wsnt to do now)

I also have some questions aroind tax calcs, do I have to pay tax on entire profit if I Seel after 3 years? it is confusing because according to IRS I dont need to pay tax for entire profit but just the business portion of the profit which will be 1/3rd (6 years in rental/12 years as primary) in which case its not a lot of money saved in taxes considering if I go with option a) now I have to take a 10% transaction cost.

Please advise.
Please share your opinions

Money Ronin

Since I can't predict the future, I can't recommend which whether to take A, C or D.

I can only say with certainty that mortgage rates are at historic lows, so I would not pay off a low interest rate loan like my home mortgage.  You sound like an investor.  You're going to kick yourself if you pay off a low interest rate loan now only to borrow at a higher interest rate two years from now.

If it were me, I'd take the tax free capital gain and wait for a good deal.  That may come in 6 months because you get lucky or a few years when the market turns (either real estate or stock).  I'm putting my money where my mouth is because I wrote an offer on a investment property yesterday.