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Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains, and was simply clarifying. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.
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