I own a condo in CA that I am renting out. If I sell and use proceeds to buy a house in Austin, would I need to pay capital gains?

Asked by Felix, Austin, TX Mon May 28, 2012

Condo is 2BR, 2BA in Sunnyvale, CA, worth about $375k with $150k left on the mortgage, so am looking to buy with cash or minimal mortgage so as to let us divert as much income as possible towards college savings for our 1-year-old, so also wondering if there'd be any issues with that. Mortgage calculators don't seem to like loans below a certain amount for some reason.

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Terri Vellios, Agent, Campbell, CA
Mon May 28, 2012
You will want to check with your tax adviser on any taxes which affect you.

The rule of thumb has been if you lived in your home at least 2 of last 5 years a single person would be be able to sell and not be taxed on $250,000 or less of the gain ($500,000 for a couple). Again, I am not a tax person and since this is a huge decision place a call to your tax consultant.

The other question would come up if you are moving out of state whether or not the title company is required to withhold state income tax. There is a questionnaire you will be required to answer it is called the F.I.R.P.T.A.

Feel comfortable to reach out to me if I may provide any further resources or help.

Have an amazing day.
Web Reference:  http://www.terrivellios.com
0 votes
Stu Carson, Agent, San Jose, CA
Mon May 28, 2012
Terri is right on! I second her advise.

I have to ask why you are assuming you should sell it? Why sell at the bottom of the market, just as values are beginning to turn upwards? Have you considered renting it? My hunch is you could rent it and come out positive on your net profit and cash flow.

I owned a mortgage company until 2008 and I believe you may find the lenders consider your keeping it as a rental given the monthly lease/rent you could obtain, as a "wash". In otherwords, you are as likely to qualify for a new loan in TX whether you have sold the home here or not.

Give me a call or drop me an email if you'd like to discuss further. Visit my website to learn more about my background.

1 vote
Ruth and Per…, Agent, Los Gatos, CA
Tue Jun 26, 2012
Hi Felix

The smartest thing to do is a 1031 Exchange.

if you have had your property as a rental for more than 2 years you are looking at a 10%
Capital gains tax. Check with your Tax advisor.

If less do a 1031 exchange, if more do a 1031 Exchange.

A 1031 Exchange allows you to differ Taxes. If you wish not to do one, then you
have to pay Capital Gains unless you have Stock Losses, again talk to your
Tax advisor.

Good luck.
0 votes
Robert Lei, Agent, Cupertino, CA
Mon May 28, 2012
Check with your tax professional, but here If you can sell your condo before it reaches the 3 out of 5 year mark as a rental, then you will qualify for the 2 out of 5 year primary residency capital gain exclusion of $250,000 (single) or $500,000 (married). If you miss the primary residence $250,000 / $500,000 exclusion, then you still have the option to do a 1031 exchange to avoid paying capital gains. Again, please double-check with your tax professional.
0 votes
Terri Vellios, Agent, Campbell, CA
Mon May 28, 2012

Here is a 4 page article which you may find of interest.
Web Reference:  http://www.terrivellios.com
0 votes
Andrea Wince…, Agent, Milpitas, CA
Mon May 28, 2012
Your tax advisor is the best person to answer this question or the IRS directly.
You may be able to find your answer there or call them and ask.
0 votes
Nila Patel, Agent, Sunnyvale, CA
Mon May 28, 2012
The best person to give you advice on this question is your tax accountant. Realtors cannot give you any legal advice on capital gains or any topic related to your taxes.

408 636 3806
0 votes
Marcy Moyer, Agent, Palo Alto, CA
Mon May 28, 2012
Fling 93,
I am not an accountant and I do not even play one on TV. So, to get answers specific to your question you should consult an accountant. However, in general, you can do a 1031 Exchange to defer capital gains tax. What this means is that if you have an income producing property, ie your california condo, you can sell it and purchase something of equal or greater value that will also produce income, and defer the tax. So if you sell your condo and buy a house in Austin that you rent out and you pay $375K for that house then you would not have to pay a capital gains tax at this point. If you want to pocket the cash you have and buy something for 225K then the 150 K you pocket would have some tax due, depending on what the actual gain is on the property. If you bought the condo fro 375K or more than there is no gain and you probably don't owe tax. However, if you bought it for less than 375K and do not use the entire 375K to buy a new rental property then there will be some taxes owed. Again, you would need to speak with an accountant to determine how much. You will have to identify a new property in 45 days from close of escrow on the condo, and close escrow on the new property within 180 days of selling the the condo.
If you are going to buy a house in Austin to live in, not as an investment then you will not be able to defer the gain.
Also, if you lived in the Ca condo for 2 of the last 5 years then you can use your homeowner exemption to not ever pay tax on up to $250K for a single or $500K for a married person, even if it was rented out for 3 of the last 5 five years.
I hope this helps!
Marcy Moyer
D.R.E. 01191194
Web Reference:  http://www.marcymoyer.com
0 votes
Vinicius Bra…, Agent, Cupertino, CA
Mon May 28, 2012
If you have not lived in that condo for more that 2 of the last 5 years it will not be considered a primary residence and will be subject to capital gains. The only way to avoid paying capital gains is to do a 1031 exchange.

For more information about 1031 exchanges please visit my website http://SantaClaraValleyLiving.com or call me.

If you need any information about the sale of your condo here in Sunnyvale, please feel free to call me. I can help you set up the exchange and facilitate the transaction.
0 votes
Christopher…, Agent, Tarrytown, NY
Mon May 28, 2012
Typically you can avoid capital gains if you are under 65, buy within two years, and buy something of the same value or hire. Just check with your accountant to be sure nothing has changed.

0 votes
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