I'm considering selling my rental property. It's a 3/2 home, built in 2016. I've been blessed with good tenants, low maintenance/repair costs. It's always been very easy to rent in the past because there is more rental demand than supply.
In the last year, there's been an explosion of new construction in the area, and investors are buying brand new houses and offering them for rent. Rent prices are high, with few options less than $2000/month. My property has increased in value, peaking earlier this year but I opted to leave my tenants undisturbed.
If I keep it, it's probably time to repair/replace the privacy fence, and carpets in the bedrooms. I'd continue to have about $1000 positive cash flow per month, barring any unforeseen expenses, and get about $5K in depreciation as a tax benefit. Property taxes have risen sharply as the house appreciated, so I'm anticipating about $7500 in property tax, insurance and routine maintenance.
If I sell it, I lose the cashflow, but also lose the potential for problems. I lose the depreciation deduction and it actually gets recaptured as ordinary income. I get taxed 25% on it, if my research is correct. That's a higher tax rate than I've been avoiding. I also will have capital gains of about $100K, 20% of which goes to taxes and 80% I get to keep. Selling it will probably mean I pay for tax prep since I'm not an expert in this area, and between my employment, the recaptured depreciation, and the capital gains my AGI will be quite high-- driving higher medicare costs in three years. That AGI jump will cost about $5K in higher medicare premiums, but just for one year.
When I look at both options, every year that I wait to sell is another $5K depreciation benefit-- but unless I never sell it, it's just shifting the liabilty to later. And any capital gains will be taxed at 20%, and I get the other 80%. I don't know if prices will go up or down, so my 80% could be more at a later time-- or could be less.
I'm leaning to selling. The selling expenses and taxes will net a chunk of change, some of which earmarked to return my original down payment with interest. I rolled the mortgage into a refi a few years ago, at 2.875%. At that rate, I am not in a hurry to pay it off.... so not thinking I'll "repay" into the mortage on my residence.
What am I missing? Or have I considered the important stuff? THANK YOU if you've read this far, and thanks even more if you comment. Just need validation that my thought process is sound.
In the last year, there's been an explosion of new construction in the area, and investors are buying brand new houses and offering them for rent. Rent prices are high, with few options less than $2000/month. My property has increased in value, peaking earlier this year but I opted to leave my tenants undisturbed.
If I keep it, it's probably time to repair/replace the privacy fence, and carpets in the bedrooms. I'd continue to have about $1000 positive cash flow per month, barring any unforeseen expenses, and get about $5K in depreciation as a tax benefit. Property taxes have risen sharply as the house appreciated, so I'm anticipating about $7500 in property tax, insurance and routine maintenance.
If I sell it, I lose the cashflow, but also lose the potential for problems. I lose the depreciation deduction and it actually gets recaptured as ordinary income. I get taxed 25% on it, if my research is correct. That's a higher tax rate than I've been avoiding. I also will have capital gains of about $100K, 20% of which goes to taxes and 80% I get to keep. Selling it will probably mean I pay for tax prep since I'm not an expert in this area, and between my employment, the recaptured depreciation, and the capital gains my AGI will be quite high-- driving higher medicare costs in three years. That AGI jump will cost about $5K in higher medicare premiums, but just for one year.
When I look at both options, every year that I wait to sell is another $5K depreciation benefit-- but unless I never sell it, it's just shifting the liabilty to later. And any capital gains will be taxed at 20%, and I get the other 80%. I don't know if prices will go up or down, so my 80% could be more at a later time-- or could be less.
I'm leaning to selling. The selling expenses and taxes will net a chunk of change, some of which earmarked to return my original down payment with interest. I rolled the mortgage into a refi a few years ago, at 2.875%. At that rate, I am not in a hurry to pay it off.... so not thinking I'll "repay" into the mortage on my residence.
What am I missing? Or have I considered the important stuff? THANK YOU if you've read this far, and thanks even more if you comment. Just need validation that my thought process is sound.
Statistics: Posted by togb — Tue Dec 26, 2023 10:14 am — Replies 2 — Views 189