Avoiding capital gains taxes

[stool_sample]

HI! So we are moving, and have paid off our current house which we bought in 2015. We are fortunate enough to be able to buy our next house without having to sell our current house. The question is, does it make more financial sense to sell our current house (it hasn't gone up in value as much as we would like) or keep it but rent it? From what I have read one can avoid capital gains taxes if you own and lived in the house for at least 2 of the last 5 years (right now, it's 5/5 years).

https://www.fool.com/millionacres/taxes/capital-gains/taxes-selling-house-what-all-homeowners-should-know/

But I wanted to ask the question here to see if this is actually true and what you all would do in a similar situation - rent the house for three years and then sell, or sell now and invest in quality funds? And if the latter, any funds you recommend?

[HandFellow]

I should show this to my wife and let her give you the answer. She wanted to sell out old condo 15 years ago and I wanted to keep it as a rental. I won. We made about 100 a month on the rent, though it really helped with taxes. But now, very long story short, we are selling it. In order to avoid about 50-60k in capital gains taxes, I have to do a 1031 and have to stay in real estate.

I guess it primarily comes down to if you want to be a land lord. You will be taxed on that rental income too. If you don’t want to be a landlord and if you don’t want to pay capital gains, sell now

[ENT Doc]

Sell. Sell. Sell.

[Larry Ragman]

I should show this to my wife and let her give you the answer. She wanted to sell out old condo 15 years ago and I wanted to keep it as a rental. I won. We made about 100 a month on the rent, though it really helped with taxes. But now, very long story short, we are selling it. In order to avoid about 50-60k in capital gains taxes, I have to do a 1031 and have to stay in real estate.

I guess it primarily comes down to if you want to be a land lord. You will be taxed on that rental income too. If you don’t want to be a landlord and if you don’t want to pay capital gains, sell now

Well, if you have some TLH losses from March you could offset the gains...

[pierre]

HI! So we are moving, and have paid off our current house which we bought in 2015. We are fortunate enough to be able to buy our next house without having to sell our current house. The question is, does it make more financial sense to sell our current house (it hasn't gone up in value as much as we would like) or keep it but rent it? From what I have read one can avoid capital gains taxes if you own and lived in the house for at least 2 of the last 5 years (right now, it's 5/5 years).

https://www.fool.com/millionacres/taxes/capital-gains/taxes-selling-house-what-all-homeowners-should-know/

But I wanted to ask the question here to see if this is actually true and what you all would do in a similar situation - rent the house for three years and then sell, or sell now and invest in quality funds? And if the latter, any funds you recommend?

Yes it's true. But it's only one thing to consider in your situation. If the choices are sell now or sell in three years, I would just sell now. Who knows what's going to happen with property values between now and then.

[Lithium]

If you were an investor looking to buy a rental property, is your house one you would consider worth paying the market price for? Why?

[HandFellow]

Well, if you have some TLH losses from March you could offset the gains...

not all of us have that many losses to take. And we are in a better situation now as it is with the 1031

[HikingDO]

Nothing much to add here, other than to say that the OP has both the worst and best name that I’ve seen in awhile.

[Tim]

Don’t let the tax tail wag the dog.
Timing the sale of a rental property is challenging.
You have tenants or vacancy to contend with in prepping the house for sale.
a) considering the 3 year window, you may miss it or not be able to get FMV due to time constraints.
b) if you are not committed to rental property and you ran the numbers, why invest in real estate? The answer would only favor keeping it if the numbers showed a better return than investing.
You already qualify for $500k exemption. The appreciation doesn’t seem to be anticipated.
Seems like investment, tax, and liquidity all point to sell.

[Lordosis]

Nothing much to add here, other than to say that the OP has both the worst and best name that I’ve seen in awhile.

I knew a lab director who had something like this on his shelf.

https://images.app.goo.gl/ZwNNZgs8yT3hYQYDA

[jfoxcpacfp]

Ask 10 people what they would buy if you asked how to “invest in quality funds” and you’ll get 10 different answers. No way to predict the market for your house over the next 3 yrs. And no way to predict how long it will take to sell. Only reason, impo, to keep the house for rental prop is if:

• You are wanting to get into rental property and this is the house out of all available properties you would buy (again), similar to what Lithium posted and/or
• You would invest in a non-optimal portfolio.

Understand that, by keeping the house for 3 years, you are making a long-term choice over a short-term time frame, never something I would advise if asked. Given that it “hasn’t gone up in value as much as we would like”, I know what my choice would be. I hope you can read between the lines.

[stool_sample]

I thank you all for your answers, and appreciate the time spent in formulating them. I will explore the other forum to determine which funds are best to buy. Seems like a lot of folks like Vanguard's total market fund.

[Todd Dexheimer]

If you would buy that home as a rental property to begin with, then it may make sense to keep. If not, then sell it.

[ThatOD]

If you're trying to avoid cap gains taxes, real estate investing within opportunity zones is likely your best option. We're constantly looking for these types of investments for our investors.

Best,
Ryan
RE investor/advisor