Rent vs Buy in San Diego>Question Details

Maureen Mcgr…, Home Owner in San Diego, CA

Capital gains tax ? - are you charged capital gains on rental income and/or any profits made from that rental, along with profits made on sale of home

Asked by Maureen Mcgregor, San Diego, CA Sat May 14, 2011

Need add'l capital gains info - not sure whether BEST to buy or sell, depending on capital gains complications- We currently own a home in San Diego, and are moving (husband is already there)to Albuquerque, NM - we DO have about $100,000 in home equity on our SD home, but know this is a LOUSY TIME TO SELL HOME - was prepared to take the risks of renting it out and buying a home later in Albuquerque, NM., but now am not sure exactly WHAT capital gains you are taxed on? Are you taxed on ALL profits made on your home, including any rental income while you rented out your home? Also, does the IRS give you any tax breaks, IF you HAD to move to get employment? Finally, are ALL HOME IMPROVEMENTS you made to your home counted to help lessen any capital gains? Please advise asap. THANK YOU SO MUCH FOR YOUR HELP WITH THIS!

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14
I'm not an accountant, but owning a rental home for about 10 years, here is how I understand it:

You pay INCOME TAX on rental income, and CAPITAL GAIN tax on the difference between PURCHASE and SALE price.

If you take depreciation on you property, than the PURCHASE PRICE amount decreases, thus capital gain tax goes up.

Hope this is simple enough and helps.
Web Reference: http://www.rentalcalc.org/
5 votes Thank Flag Link Wed Jul 23, 2014
Like everyone else, you should talk to a tax consultant, but I can give you my two cents as an agent and an investor in rental property.

I think you are confusing capital gains with rental income. Rental income gets taxed at your normal income rate each year and does not have an impact on your capital gains. So if you rent your house out at $1000 a month and have $500 a month in mortgage interest and $2400 a year in property taxes ($200 /month), then you are making $300 a month, or $3600 a year. You then pay taxes each year on this.

If you sell your home in the future, you can claim it as your residence if you lived there 24 months out of the last 60 months AND have not claimed this deduction at any other point in the last two years. In other words, you can rent for two years, then sell and get the $500k deduction for capital gains.
1 vote Thank Flag Link Mon May 16, 2011
Free Advice on Tax issue is usually not a good idea. Consult with a tax attorney.
0 votes Thank Flag Link Fri Jul 26, 2013
No matter what you read here, you should consult with a tax professional. It could be the best money you ever spent.

Based on what I know from investing myself, if you or you're husband lived in the home an aggregate of two years out of the last five, $250,000 of your gains are excluded for each of you if you're both on title, so it looks like you're OK even if only one of you is on title. You can even rent it for two years and sell it at the same exclusion, if you did live in it for two out of the last five years, and still take the gain exclusion.

Renting could be beneficial too, if you can qualify for a new home in NM. Even if you can't qualify without the proceeds from your current house, you can use the rental income to help you qualify after a certain number of months with proof of that income (I can send you a lender to talk to if you want). If that works for you, then you'd own a home in NM, and a rental in San Diego. When prices go up in the future, you'll have more equity and higher rent from your tenants. Not bad!

Regards,
Cory
0 votes Thank Flag Link Mon May 16, 2011
Thank You for contacting me, as a Real Estate agent I am not qualified to answer tax questions, I would recoommend you speak to your CPA or tax preparer. If you would like to have some information on the value of your home, I am happy to help.
Ron Oster
Ascent Real Estate
619 543 0414
ron@ronoster.com
0 votes Thank Flag Link Mon May 16, 2011
Hi Maureen,

The best thing for you to do is call your CPA or a real estate tax attorney. Agents and Brokers are not qualified to give tax advice to home owners, unless one of us is a CPA and then there may be a conflict of interest.

Best to you,

Mark & Kari Shea
Shea Real Estate
Serving Greater San Diego
0 votes Thank Flag Link Mon May 16, 2011
0 votes Thank Flag Link Sun May 15, 2011
Maureen,
The best source of advice is from your tax preparer or a CPA. However I can give you some general information about your situation.
If you have lived in your home in San Diego for at least 2 of the last 5 years you would have the first $500,000 of gain excluded from taxation. This is assuming that you and your husband both are on title. If only one of you are on title then it would be limited to $250,000 exclusion.
If you decided to keep your home and rent it then you would pay taxes on the net rental income after your expenses as ordinary income. When you sell the home you may be subject to capital gains taxes on the gain. However if you were to sell it and buy another rental you may be able to defer the gain through a 1031 Exchange. This should be discussed with your tax person to get complete information for your particular situation.
If you decide to sell you home in San Diego I would of course be glad to help you. There are a lot of buyers out there at this time since interest rates are so low.

Jerry Heard
Your Broker
The San Diego Property Shop
http://www.TheSanDiegoPropertyShop.com
jerry.sdps@cox.net
Direct 619-920-9796
Office 619-269-5545
Fax 619-269-9168
CA DRE #00648687

"When a man has put a limit on what he will do, he has put a limit on what he can do" Charles Schwab
0 votes Thank Flag Link Sun May 15, 2011
Dear Maureen,

I would strongly recommend speaking with your CPA. They are truly the experts that can provide you with accurate advice regarding your taxes. As realtors we are not allowed to give tax advices. Good luck


Leslie Lawson, Realtor
THE BEST MOVE YOU'LL EVER MAKE!
DRE#01896125
951-852-0080 Direct
951-326-3100 Office
951-326-3106 Fax
leslielawson@realtyexecutives.com
http://www.realtyexecutives.com/leslielawson
Relationships + Results + Integrity = REFERRALS!
0 votes Thank Flag Link Sun May 15, 2011
Please contact your accountant..he is the best to advise as he knows all the other particulars. As Realtors we are not allowed to advise on tax matters.

If you plan on buying it is not a lousy time to sell as you are working on gains and buying in a down market. It is mentioned above if the home is sold there is 100,000 equity...if it has been your primary resident (speak to
your accountant or go to San Diego's ..........

County of San Diego Treasurer - Tax Collector Provides information about property taxes, tax sales, unclaimed monies, investments, deferred compensation, FAQ, and a list of the 25 top county taxpayers.
http://www.sdtreastax.com/ - Cached

If you need any help with listing your home please contact me as I have listings and buyers in San Diego.
0 votes Thank Flag Link Sat May 14, 2011
Maueen,

I will be glad to help you. Perhaps I can earn your business in return. May I say it might be a good time to rent for a while? Here is why.

Tired of the dance around the facts in your question? After 34 years as a broker I have learned that I can give observations about taxes as long as it is clear that it is not advice, so consult a tax attorney. That being said;
1) Taxes are paid on net rental income (income after expenses and depreciation).
2) Gains on the sale of your house MAY be excluded from taxes because of your employment situation according to IRS website "Issues Home Sale Exclusion Rules" http://www.irs.gov/newsroom/article/0,,id=105042,00.html (cut and paste the link to read about this important tax rule)

As a matter of fact it may be a great a time to sell, there are lots of buyers and interest rates are low. According to the April 26th Case-Schiller study which includes San Diego (link below) prices are dropping here liek a rock in a pond at .83% per month, obviously we are not at the bottom. When you sell here in San Diego and buy in Albuquerque you are into an even more quickly depressing market than here in San Diego according to Zillow (http://www.zillow.com/local-info/NM-Albuquerque-home-value/r…)

Hope that this help you in your transition.

If you need anything further...

Steve Innis, Broker-Owner
Clairemont Realty
1020 Prospect Street, Suite 250
La Jolla, Ca 92037
858-454-5600-office
858-922-2410-cell
CA DRE Broker's License #00644965 since 1982
http://www.ClairemontRealty.com
http://www.Clairemont.ListingBook.com
0 votes Thank Flag Link Sat May 14, 2011
Hi Maureen,
I would suggest you get professional tax advice before deciding what is best for you. That said here is some general information. The sale of your personal residence enjoys some very good tax breaks. The first $250,000 gain for a single and $500,000 gain for a married couple is tax free. So if you sold today the $100,000 gain might be tax free. If you convert the property to rental property there will be a cost basis adjustment and the rental home will be depreciated from the adjusted basis. The rental income will be treated as ordinary income not capital gain income. When you sell the rental property a capital gain/loss will be calculated at that time. So again, these are great questions and I recommend you get professional tax advice.
Good luck with your move.
Web Reference: http://ocnorth.com
0 votes Thank Flag Link Sat May 14, 2011
Hi Maureen,

As a REALTOR®, I'm not allowed to give tax or legal advise, so I'm going to suggest you speak with your accountant or attorney about this. If you would like a referral, I'd be happy to suggest you look at the website I've listed below. If you decide you would like to sell your home, I'd be happy to schedule an appointment with you, to come and view it and discuss your options.

Best of Luck to you,

Carol Stanford
REALTOR® - ABR®, CID & SFR Certified
CA DRE# 01390529
619-987-8766 cell
Silvercrest Realty Group, Inc.
0 votes Thank Flag Link Sat May 14, 2011
When it comes to any tax related questions, it's always best to consult with your tax professional and or tax attorney; he/she can best advise as it relates to your specific situation....
0 votes Thank Flag Link Sat May 14, 2011
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