Rental Properties for dummies with questions

[jm2e]

From casual observation, it seems about half the people in here have incidental rental properties and lack in depth financial planning and tax expertise, the other half have rental properties as part of an elaborate well planned portfolio, and the third half are pretentious pricks.
I'm leaving room for some overlap on that Vin Diagram.

I'm fully ensconced the first group, but frequently find myself drifting into the pretentious prick group.

My first two questions are, (made up numbers): Purchase price $400k with $300k mortgage. Sell for $500k and $200k remaining on mortgage. If I buy a $300k house with a $200k mortgage (replace with same mortgage, reinvest all net income) would that be a net zero Like-Kind 1031 exchange? And if I rent it out for 2 years, but then move into it for 3 years, would I avoid capital gains and depreciation recapture when I finally sell it? I don't have kids. I'm not planning anything now, and would run everything by my tax guy when the time comes to actually do something.

[Cruiser]

I'm prolly in the 3rd group.

Edit, I wrote a reply but I think it was dumb. Imma sit back and wait for the real experts to chime in.

[I Skied Bandini Mountain]

I'm not that pretentious.

[Whiteroom_Guardian]

[easyrdr]

You cannot 1031 exchange your primary residence. Now with that said you move out and make it a rental for the right amount of time then you could. Of course doing that means you don't get the $250k if single 500k married, exemption when you sell either. Kind of got to go one way or the other.

To get the $250/500k exemption here you just need to live in the house 2 out of the last 5 years.

[Danno]

it seems about half the people in here have incidental rental properties and lack in depth financial planning and tax expertise, the other half have rental properties as part of an elaborate well planned portfolio, and the third half are pretentious pricks.

Oooh, oooh, is this like the TRG version of fuck, marry, kill?


ETA: I don't even own one property, let alone multiple, so that puts me in the fourth half. Or something.

[Danno]

The Vin diagram FTW!

[XXX-er]

I 'm in that 1st of the 3 halves, I almost flunked out of HS cuz of math but I was still able to count to 1 & 1/2 so I don't know if OP even qualifys for the first group

[yeahman]

The red ones.

[XXX-er]

My buddy in the outdoor gear bidness tells me he buys a property in which to open a store, he pays a mortgage but never rent and so he figures to own all those buildings in 20 yrs with the proceeds of operating and he definatley talks to an accountant,

Personaly I don't need an accountant to operate a basement suite

[fastfred]

I 'm in that 1st of the 3 halves, I almost flunked out of HS cuz of math but I was still able to count to 1 & 1/2 so I don't know if OP even qualifys for the first group

hey me too except I had trouble with english and science too
graduated finally passing 9th grade math my senior year they called it course one

but to answer the question you can sit around consulting consultants asking about taxes making spreadsheets and pretending to make the most informed decision out there
or you can shoot from the hip bust a couple and win a bunch
ask me how I know

chances of success are the same shooting from the hip and being all calculated
the reality is your dead in the end

[mcski]

Do you have to dig up the dead hookers when you sell the property? Could you claim them as dependents?

[El Chupacabra]

POTD.

[XXX-er]

hey me too except I had trouble with english and science too
graduated finally passing 9th grade math my senior year they called it course one

but to answer the question you can sit around consulting consultants asking about taxes making spreadsheets and pretending to make the most informed decision out there
or you can shoot from the hip bust a couple and win a bunch
ask me how I know

chances of success are the same shooting from the hip and being all calculated
the reality is your dead in the end

people say " if you retired at 49 you must have done everything right " to which i reply " I did everything wrong and it turned out right "

but I would talk to an accountant if i was gona operate a business cuz I would be hiring him to do taxes anyway

[pepperdawg]

3 halves don't make a dozen.

[lowsparkco]

If you lived in the house for two of the last five years you don’t owe capital gains so no need for a 1031 exchange.

If you did not, then there is no other way to shield the proceeds.

Yes, you can rent a house for as long as you want, move back into it for two years and avoid paying capital gains.

[Shredhead]

Yes, you can rent a house for as long as you want, move back into it for two years and avoid paying capital gains.

But you will owe the Depreciation Recapture on any you wrote off during your rental period.


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[JimmyCarter]

3 halves don't make a dozen.

You forgot about the exchange rate

[ticketchecker]

Yes, you can rent a house for as long as you want, move back into it for two years and avoid paying capital gains.

Does this apply if it’s a three unit building that has been my primary residence? Ie, I rent out two units.

My name is Ticketchecker and I’m a first halfer.






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[Name Redacted]

Id recommend using a company like Asset Preservation Inc to help guide you. It is a confusing process with little leeway in terms of missing certain things on the timeline.

We tried to do a 1031 but decided to go another direction and pay the taxes and use the gains to buy a business. Problem for is was that we kept getting outbid and weren’t able to lock down any properties that we wanted. You can also roll your gains into REITs with a 1031 which may or may not be a good idea.

[jm2e]

But you will owe the Depreciation Recapture on any you wrote off during your rental period.
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Yea, that's pretty much what I was getting at. Seems like the only way to get around eventual depreciation recapture is by dying.

But the whole thing about 1031 boot still leaves me confused. Seems like it discourages getting into a place with a better Loan to value ratio since you are required to borrow as much as you had in remaining mortgage.

[Harry]

^^ that’s the whole idea, the 1031 law is there to help out the banking industry. If little people like you get some benefit along the way that’s cool too.

[Name Redacted]

Yea, that's pretty much what I was getting at. Seems like the only way to get around eventual depreciation recapture is by dying.

But the whole thing about 1031 boot still leaves me confused. Seems like it discourages getting into a place with a better Loan to value ratio since you are required to borrow as much as you had in remaining mortgage.

You are looking at this all wrong.
The intention of the 1031 is not to help out the little guys like you and I to get into a better financial position. It is to incentivize greater investment. You are supposed to be selling your property and buying a more expensive property that will generate more income for you to pay taxes on.

The 1031 isn't a charitable "get out of debt" strategy. It is a way to lure people into investing more in real estate. It really doesn't exist in any other kind of investment.

[californiagrown]

I bought a condo back in 2016 and lived there until SPring 2021 when i bought and moved into a house with my wife. Ive been renting the condo ever since. Is there any benefit to selling in the next 2 years if i am not planning on buying a new primary residence? the only real estate i would buy in the next few years would be land for future vacation/retirement home.

[stuckathuntermtn]

I bought a condo back in 2016 and lived there until SPring 2021 when i bought and moved into a house with my wife. Ive been renting the condo ever since. Is there any benefit to selling in the next 2 years if i am not planning on buying a new primary residence? the only real estate i would buy in the next few years would be land for future vacation/retirement home.

Sell it to your renter. He's been paying you for it for the past 2 years.
The best investment strategy for residential landlords is to eat shit and die.