Well, the end of summer and that hot, humid weather is almost a memory and Labor Day is upon us.
That last weekend where we can let our hair down and our Freak Flag Fly (Jimmy Hendrix Experience, “If a 6 was a 9,” “Axis Bold As Love,” 1967 from the film Easy Rider, 1969).
The cooler, then the colder, frigid weather and oh yeah, snow, will be coming down the pike and you may be starting to think, maybe I should sell my place, but then again, you may not need the dollars, since you have a another place to go to down south or west or on an Caribbean island.
How about renting?
Oh boy, now I have to be a landlord, not sure if that is my forte.
But, then again, if I rent my place out for two years and one day, collect and document my rental income; then, I can flip what was my primary residence, and now an investment vehicle and create a 1031 Exchange and then defer the profit, that might have been and buy something else closer to where I may be retiring or relocating and defer my capital gains.
This method may not be everyone, but then again, where better to gain the most bang our or your buck, than rental income.
The banks are paying ¼ percent, you could put your sale money (you will owe income taxes on the gain, if you are still married you are allowed, $500,000, plus your what you paid for your home, plus any capital improvements or if single, $250,000, plus what you paid and add that to what capital improvement upgrades you may have done to your primary residence.
If you have been in your home for a very long time, let’s say, 20-50 years and depending on your town/location and what improvements you have made along the way, you may not have any capital gains to pay (ask your CPA or certified financial advisor) or you may have to pay:
Here is an Example for your primary residence, if married: Let’s say your home is worth:
$750,000
Subtract what you originally paid: – $160,000
Subtract Permanent Capital Improvements: – $50,000
Subtract Marriage Deduction: – $500,000
$40,000 (amount subject to capital gains (percentage could be from 0 — 15-28 percent depending on your tax bracket (speak with your CPA or your certified financial advisor).
Whether you will pay a long term capital gains tax or not, will depend on your tax bracket in the year that you sell your primary residence and will also depend on your marriage status at the time, (if a spouse has passed in the same year, there are exceptions, but speak with your CPA or certified financial advisor)
The 1031 Exchange has been around for almost 100 years (1921) and was initiated to stimulate the economy.
However, in 1991, some changes took place, due to the Starker vs. U.S. case.
Previously, there had been talk about rescinding or at least changing, the 1031 Tax Deferred Exchange, probably for the government to be able to collect more taxes sooner; but at this point in time, nothing will be done, until the next President comes into office, whoever he or she maybe, Oh boy! Can’t wait!
My advice is to choose the path most financially feasible for you with your specific situation, but you should look into the 1031 Deferred Tax Exchange, if it fits your comfort zone, because it is a fantastic way to defer income taxes not only on your primary residence, if setup properly, but can be an excellent method for all other types of properties that you currently own.
Bonus Information for our Readers:
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Phil Racies is the owner of Turn Key Real Estate at 7 Bond St. in Great Neck.
He can be reached by email: Phil@TurnkeyRealEstate.Com or by cell (516) 647-4289 to answer any of your questions. To search for any type of properties or to see what your home is worth or homes that have sold in your area, go to WWW.Li-RealEstate.Com or if you desire a free, no strings attached customized Comparative Market Analysis to see today’s market value, just call me for an appointment.
Real Estate Watch: Should I sell or rent using 1031?
