15 years ago, I purchased a 2 family house that we lived in unit 1 and rent out unit 2. I never thought about it as an investment and it did suit out needs for 10 years. 2 years ago, we decided to move to another state but instead of selling we decided to rent out both apartment for rental income. The rental income isn't great. House is worth 1M and total income is roughly 2K per month net of all the expense (utlities, taxes, insurance etc). There are also a lot of surprise maintenance cost like sewage clog, raccoon and linking pipes that is adding up the cost. Luckily, my parents still live nearby and can help. Also, my husband commute to that town daily so it's do-able from a property perspective but still a headache. I don't expect all those issues every year but I know there are lots of repairs that comes with home ownership.
For me, it's hard to project the price appreciation of this home, house is not in a hot area so I think maybe growth would be a little more than inflation. (In the last 15 year, the price appreciation was roughly 4% per year vs 2.5% avg inflation.)
If I sell now, it would be treated 50% as rental for Unit 2 and primary home for Unit 1 since I did live there 2 out of 5 years. (so 50% of the house is not subject to cap gains) I still have a hefty depreciation recapture and cap gains on 50% of the property.
High level mock Turbotax shows this sales would cause my income to go for from 300K to 600K, incremental tax is about 100K of total.
Based on my research, there are limited ways to reduce taxes
1) Passing it to my kids when we die but we are only 44 and 48.
2) Selling when we retire, ( lower tax bracket), and first moving back to that house and lived 2 years first before selling which will reduce or eliminate cap gains tax. Deprecaition recapture would also be lower. While that is a possibility in 15 years, that's also a long to wait
3) 1031 exchange to a different property, but I don't want to buy or manage another property, its too stressful
I am thinking we bit the bullet now and pay that tax bill, then use the sales to invest in the market, hopefully it will be passive income with a higher return.
Emotionally, both my husband and I are ready to sell but it is a large transaction with a large tax bill so we don't want seller remorse.
Is there anything I am missing here that I didn't think of?
For me, it's hard to project the price appreciation of this home, house is not in a hot area so I think maybe growth would be a little more than inflation. (In the last 15 year, the price appreciation was roughly 4% per year vs 2.5% avg inflation.)
If I sell now, it would be treated 50% as rental for Unit 2 and primary home for Unit 1 since I did live there 2 out of 5 years. (so 50% of the house is not subject to cap gains) I still have a hefty depreciation recapture and cap gains on 50% of the property.
High level mock Turbotax shows this sales would cause my income to go for from 300K to 600K, incremental tax is about 100K of total.
Based on my research, there are limited ways to reduce taxes
1) Passing it to my kids when we die but we are only 44 and 48.
2) Selling when we retire, ( lower tax bracket), and first moving back to that house and lived 2 years first before selling which will reduce or eliminate cap gains tax. Deprecaition recapture would also be lower. While that is a possibility in 15 years, that's also a long to wait
3) 1031 exchange to a different property, but I don't want to buy or manage another property, its too stressful
I am thinking we bit the bullet now and pay that tax bill, then use the sales to invest in the market, hopefully it will be passive income with a higher return.
Emotionally, both my husband and I are ready to sell but it is a large transaction with a large tax bill so we don't want seller remorse.
Is there anything I am missing here that I didn't think of?
Statistics: Posted by Ccthealias — Tue Sep 24, 2024 6:16 pm — Replies 0 — Views 56