I am a real estate beginner looking for the best strategy to maximize on the tax benefits of the irs 523 rule. Here is a little info about my situation.
I have a full time job, my wife and I both work (together gross about 250k/year, we can save about 80-100k/yr)
no houses/apartments now, but currently in contract to purchase 2 condos (1 primary, 1 rental/vacation).
we live in nyc so apartments in the areas that we are interested in generally are in the 400k to 800k range.
goal: 10 houses/apartments own outright (no mortgage) by the time I retire around 2038
any advice/idea is appreciated, thank you guys in advance.
I assume that you are really asking about certain exceptions to the 2 year rules found in IRS pub 523 regarding the capital gains exclusion when you sell your primary residence. You ask about how to benefit from the “523 rule”, but don’t give us any relevant details. Why do you believe the “523 rule” should apply to you?
Have you read IRS publication 523? That would be a good start. If you are willing to uproot your life and sell your primary residence every two years and move into a new one you could theoretically generate tax free income on a regular basis. Of course this assumes all properties appreciate during the intervening 2yr period.
This is an interesting discussion… My wife and I thought about this recently - the plan:
1 - sell our home
2 - get the equity and buy a really big house/fixer up in a very nice neighborhood - we figured that we could get a very good deal if the house was in need of repairs.
3 - Fix the house up over the following 2 years
4 - seel the house for a profit - even if the market did not appreciate much, we could still make a profit because we fixed the house up.
5 - If we could get the $250k of tax free income every 2 years it would be great.
6 - and the nice thing about this plan is that I would be doing the work myself - I enjoy working around the house.
I thought that was a good plan. My wife never bought the idea and didn’t feel good about it. I believe the biggest problem was that my wife wanted to use professionals to do the fix up. I wanted to do them myself. In my mind, hiring professionals would kill a lot of the profit and the joy… :O( We kept discussing and eventually came up with a new plan: buy, fix and sell properties - without touching our home. That seemed to be a good plan - however because of my job (I have a full time job and 2 young kids at home that I want to spend time with), we felt that was not really the plan for us.
The most recent plan is to buy and hold - becoming landlords… My wife is excited about this one… And if she is excited I am excited… You know how it goes… :O)
Back to the original question - Realestatebeginner, I still feel the original plan is a good plan. You would need to do your research and buy in areas where houses are selling for $300k-$500k more than the price you are paying for the property. In the end of the day, after all the fixing up, you want to sell for close to the $250k profit. And you don’t want to have the nicer house in the neighborhood. Good luck!
That will be very helpful if you can get yourself a very large house. In Texas a $1.1 million dollar house goes a long way. One recently sold for $450k or so in Sunnyvale, TX (a beautiful area outside of Dallas) and I sooooo much wanted to buy that place. But I already have a house and I’m currently investing (or will be investing) all my capital back into my existing business/real estate. However my wife & I could of cleared the first $500k of income TAX FREE if we would of bought that house, lived in it for 2 years and then sold it. It had 7 bathrooms ---- wow. Anyway in the end if you could find a foreclosure deal like that you could make a killing.
Whoa, guys. You all jumped in and started giving advice without knowing any relevant details.
beginner is not a property owner. He is thinking about buying a primary residence and a second home, and, has asked about the “523 rule” which does not exist as far as I know. We are assuming that he is referring to Pub 523, but that does not apply to him (yet) because he does not own his primary residence.
Since he has not clarified his question, you are all really just shooting in the dark.