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Selling a Home with Renters

SELLING A HOME WITH RENTERS FOR SALE When you are selling a home while tenants are renting, the two most important considerations gre how to handle your own tax liability and whether you sell the home vacant or occupied. When these two concerns are resolved, or at a minimum completely thought through, your chances of selling the property in a reasonable time-frame go up. GET YOUR TAX STRATEGY STRAIGHT The first thing you need to know about selling a rental property is that your tax situation is different – and more complex – than when selling a primary residence. PRIMARY RESIDENCE RENTAL RESIDENCE IRS rules say that you're exempt from paying taxes on any capital gains up to IRS rules say there is no exemption, so you will pay capital gains taxes on your appreciation. The calculations are complex and specific to your profile, so you must consult a tax adviser to get accurate figures. $250,000 FOR A SINGLE PERSON 25% - 30% $500,000 TYPICAL FEDERAL AND STATE CAPITAL GAINS TAX RATE FOR A MARRIED COUPLE You can avoid this tax hit if your intent is to buy a new rental home immediately after you sell. 1031 EXCHANGE IRS BENEFIT CALLED A TAX-DEFERRED EXCHANGE The exchange allows you to avoid paying the capital gains taxes at closing as long as you identify a new rental property to buy within 90 DAYS and close within 18O DAYS of closing your sale To get the full tax benefit, the new purchase must be of the same or greater than your sales price, and you must put every penny of net proceeds from the sale into the new purchase. CASES FOR SELLING WITH OR WITHOUT TENANTS Once you know your tax plan, you have decide if you want to list an occupied or vacant property. Each side of the debate over selling a home with or without tenants has its merits. VACANT PROPERTY OCCUPIED PROPERTY Many argue that sellers should wait for a tenant lease to expire and sell the property vacant, so the property is most marketable to all buyer types - owner-occupied buyers, second home buyers, and buyers who want to rent the property out. Some argue sellers should sell while the tenant is still occupying the property because the property will look better furnished, and buyers can more easily envision living there. Of course this option could backfire if the tenant does not want to move and makes the process difficult. ESSENTIAL MATH FOR RENTAL PROPERTY SELLERS Your financial situation will ultimately dictate which side of the debate you settle. The example below contains the math required to help you make a decision. If your list price is $100,000 and you bought your home 8 years ago for $75,000 using a 30 year fixed loan of 4.875 percent, you can use a mortgage calculator to determine that your balance now is $64,199 $4,800 A $24,001 CAPITAL GAINS TAX PROFIT ESTIMATE (not a 1031 Exchange) Mortgage payment, property taxes, and insurance - is about $597 Let's say you're renting the home for $700 You'll be making $103 per month IF YOU SELL THE PROPERTY VACANT You'll forgo rent for 2-6 months, during the sales process, which means you'll go from making $103 to paying $597 per month, or $3,582 if it took six months to sell If that's too much for your budget, the decision is easy: sell with the tenant in the home. But don't forget to ask your real estate agent if a tenant-occupied home risks reducing the property's resale value. COLDWELL Www.sellingwarnerrobins.com BANKER O (478) 960-8055 (C) / (478) 953-8595 x227 (0) SSK, REALTORS www.coldwellbankerssk.com Source: http://sellingwarnerrobins.com/2015/03/how-to-sell-a-home-with-renters/

Selling a Home with Renters

shared by anitaclark on Apr 18
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When you are selling a home while tenants are renting, the two most important considerations are how to handle your own tax liability and whether you sell the home vacant or occupied. When these two c...

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