Advice, selling, renting, and tax breaks

snipped-for-privacy@gmail.com posted:

A [barely] timely moment to have these thoughts: You should consult a tax professional _promptly_. The rental of your former main home is a Schedule E issue, involving depreciation and many other factors.

As you're married, and you stated "We" bought the former main home 4 years ago ... as far as IRS is concerned, you can file jointly and the first $500,000 of profit from selling that home will be free of tax. IOW, if you sold it for $1.374 Million (for a profit of $499,000), you would owe -0- tax.

However, that situation is changing, even as you read this, since you're earning income from the vacant home -- and depreciation issues have begun to accrue. That's why it is urgent that you contact a CA tax professional ASAP. For the former main home itself, the Federal tax break covers up to $500,000 for MFJ, and is available if you lived in that home for "2 of the last 5 years." As you can see, depending on what _month_ of last year you moved out ... you may be approaching an important point in time. On the surface, though, it seems you could still take advantage of the "main home exclusion" for another couple of years. Again, _get thee to a tax pro_!

You're definitely at an appropriate moment to consider how desirable it would be to use the "main-home" profit exclusion _before it expires_, and that would seem to suggest itself as a unique opportunity to amass roughly $500,000 in liquid assets, with no (federal) tax obligation. Did I mention seeking advice from a tax pro? ;-) Bill

snipped-for-privacy@gmail.com posted:

My presumption is you weren't married when you purchased the first house. Even without knowledge CA law, it's difficult to imagine a lender allowing a married person to be the sole owner. Off-the=top of my head, there are four advantages to keeping the first home are (I believe) the property taxes are fixed, you have not maxed out on the $500,000 exemption, you can move back in if the tenant leaves, and your depreciation is covering a large portion of your rent.

(Given basis = $875k + $25k = $900K and Commission = 7%, to calcualte $500k max out sale price use the following (Basis + $500k) / (1 - Commission)) + Closing-Costs). With zero closing costs (1,400K / .93) = $1,505,377. My opinion would be to continue to rent until you find a buyer at $1.6 million.

But then I know lees than 2% of your financial situation and nothing about your professional situation. So my opinion is less than a 2% solution and you need a 100% solution. But the math is correct (I think). ;) For the kind of money we're discussing, you need a local tax professional who has a solid reputation as a tax planner. That means a CPA, and Enrolled Agent, or a tax attorney. It does not mean a seasonal tax preparer. Your children will appreciate living in a house more if they have can recall living in an apartment.

Before you make any decisions, see one of the above-mentioned tax professionals.

Dick

P.S.: Stop right now and start looking for that tax pro!