selling real estate, tax question...

Here’s my situation, hoping to get some guidance. My wife and I recently sold our home that we lived in for the past two years. We recognized capital gains of approximately $200k, and used those to purchase our new house. Should be pretty straightforward for us to use our one time exception here.

In order to afford our new place, we also need to sell a condo that i’ve owned since before we met, approximately five years, has been rented for the past 3 1/2 (I lived there for one and a half years). I bought the condo for $400k, will probably be able to sell for $500k, less $30k or so for realtor fees (net capital gain around $70k). My accountant has been depreciating it since it’s been rented (I haven’t been able to track her down to answer this question for me). I’m assuming that in the 3 1/2 years it’s been rented, it’s been depreciated maybe $50k? though i really have no idea. So, assuming that is the case, my cost basis would be $350k, and I would owe 20% capital gains taxes on $120k, about $25k. Does this sound right? I know we should plan for an exchange but unfortunately can’t afford it right now. Thoughts are appreciated. Thanks!

Why not get a second on the condo rather than selling it at this time. There would be no capital gains.

Fed Cap gains tax is 15% plus whatever taxes are for your state.

You will pay 15% on the 70k plus a special 25% recapture tax on the depreciation (your number is in the right ball park). So assuming some modest state income tax, you are going to net $50k at best on this deal.

Getting a 2nd on a rental is a bit difficult but do-able; when I looked into it a few years back the rate was high (prime plus 3%) and loaded with fees (I have excllent credit). Maybe now is better or some folks on this board can recommedn something better.

Thanks for the responses guys, I found a site that does all the capital gains calculations including depreciation recapture, so that has been helpful as well. We could try to stretch to hold onto the unit and wouldn’t actually need a second (though we were hoping to pay off the line of credit on the house we live in), but we’re in the negative on a monthly basis with this place, and it’s not a place that i think is set to appreciate as well as other possible investments. We may consider a 1030 exchange, but would like to find something that’s cash flow positive if at all possible, that seems easier said than done…

you mention you are neg on the condo and appreciate outlook is not so great. 1031 does not solve the problem that you face with wanting to have more $$$ to put into the new house your are buying.

sounds like the best plan would be sell the condo, suck up the fees/taxes and move on…only other thing I can think of is to try and sell to your current tenant (or do a lease option).

as aak5454 has eluded to a 1031 is not likely your solution. I do not believe you can use the procedes from a 1031 to acquire a primary residence. Consult a 1031 expert before you go to far with that Idea.