Real Estate Advice/Opinions Sought

[Sig]

Is there a way to avoid the cg tax hit of selling your primary residence before you lived there for 2 years?

My understanding is that the 'like-kind exchange' used for investment properties is not applicable to your primary residence. Any suggestions?

 

[Eric C.]

Hi Sig,
Well I'm a Real Estate Broker in Ca, but that should be the same in any state...yes exchanges "like kind" etc are for investment property only, they just allow you to defer the taxes until later. If you have lived in your primary residence for 2 years out of any 5 year span you can shelter 250k gain/500k if married. But if you've been in it for less then 2 years and you are making a profit it may have to be taxed as a short term gain, ALTHOUGH real estate gains are taxed much lower then any other(stocks etc). You may be able to say you are selling because you have to, moving divorce etc somtimes you can get an exception there...big sometimes though. I would ask a good cpa just in case they know of a loophole or way to minimize the tax. The government does love to punish those who suceed!! :wink:
Hope that helps some, let me know if you have any questions.
Best of luck
Eric

 

[Sig]

I have only lived here for a little over 1 year, so I guess I may have to pay the piper.

The issue I ran into is a matter of net worth calculations by my business's banks. I bought my current house with a friend of mine for a couple reasons, neither one of us were married and it kept costs down a bit seeing that homes are a bit pricy in my area. Well, the banks my business gets financing through will not count my share of co-owned property towards my net worth.

My initial thought was to do a cash-out refinance of the house in just my friends name and get the house re-titled in his name only. Then I would get a check cut to me for my share of the equity. This amount would then get rolled into a down payment on whatever house I move into. Is there a better way than this?

 

[Eric C.]

Well if you need the asset only as a way to access more loans have your friend sign the home over to you..umm you are great friends right? :smile: qualify for the other loans and when feasible put them back on...if you only need to show the home as an asset. If they want to see cash in the bank as reserves that are liquid then you should be able to do a home equity line of credit with both on title no problem, maybe your friend would let you put all the equity line in an account in just your name thus improving your reserves.
This would allow you to keep the interest in the house, sounds like a good $ maker, as it goes up in value and show some cash reserves.

ps wells fargo has great home eq lines of credit...

 

[Sig]

Interesting options. Although, I was going to move this year anyway. So I will be moving either way. Depending on how things go, I may do it sooner rather than later. I don't mind co-owning my investment properties, but I decided that going forward I would like be the sole owner of my primary residence. The recent issue with my business just spead up the process a bit.

So assuming I do get out of the house at some point, is the cash-out refinance option the best way to go about it... seeing that my friend wants to stay in the house?

 

[Eric C.]

I'd say at the time you want to get out, get an appraisal of value and have your partner refinance and buy you out.
Good luck with the business!! :smile: I bought my nsx with money I made on investment property :biggrin:

 

[White92]

If you have lived in your primary residence for 2 years out of any 5 year span you can shelter 250k gain/500k if married. But if you've been in it for less then 2 years and you are making a profit it may have to be taxed as a short term gain

This is the same in my state. My brother in law does this all the time. He builds a house, lives in it for 2 years, sells it and builds another one. He's moving into his newest house this week actually. They refinanced a construction loan so there are no closing costs either. I'm not sure how you refinance something that's not already built, but sounds good to me.

 

[W]

Well if you need the asset only as a way to access more loans have your friend sign the home over to you..umm you are great friends right? :smile: qualify for the other loans and when feasible put them back on...if you only need to show the home as an asset. If they want to see cash in the bank as reserves that are liquid then you should be able to do a home equity line of credit with both on title no problem, maybe your friend would let you put all the equity line in an account in just your name thus improving your reserves.
This would allow you to keep the interest in the house, sounds like a good $ maker, as it goes up in value and show some cash reserves.

ps wells fargo has great home eq lines of credit...

I don't advise this as the bank will still not acknowledge your stake in the house and will possibly now take the co-signed loan as a giant negative.

If you're looking for a savvy way to get out of the capital gains tax, rent an apartment, change the primary residence you're in right now into a rental, buy a new home as a rental, do a 1031 exchange (sell old rental and swap with new rental), move into your new rental, now make it your primary residence. Voila, no capital gains tax to pay! Of course, the drawback is having enough credit, money, and/or luck to float the new home at the same time as the rental while paying rent on an apartment.

If you need the money now, have your friend buy you out of the current home. I think you can prorate the capital gains but consult an expert before doing so.

 

[NsXMas]

Read this article VERY carefully. Lots of exceptions, and 5 year prior purchase date on rental property one chooses to go that way.

http://www.bankrate.com/brm/news/real-estate/20041018a1.asp

 

[Sig]

Read this article VERY carefully. Lots of exceptions, and 5 year prior purchase date on rental property one chooses to go that way.

http://www.bankrate.com/brm/news/real-estate/20041018a1.asp

That was a very good article, thank you for posting it. IMO, this was one of the most interesting lines in the article:

"In either case, though, the pesky reporting requirement remains history. When your gain doesn't exceed the limit, you don't have to file anything with the IRS."

I can't tell if the author was trying to solely be factual...... Or to let the readers know that unless your gain exceeds the $ limit, not to worry because you don't have to report the particulars of the sale and whether you met the associated time requirements for the tax exlusion.

 

[NsXMas]

That was a very good article, thank you for posting it. IMO, this was one of the most interesting lines in the article:

"In either case, though, the pesky reporting requirement remains history. When your gain doesn't exceed the limit, you don't have to file anything with the IRS."

I can't tell if the author was trying to solely be factual...... Or to let the readers know that unless your gain exceeds the $ limit, not to worry because you don't have to report the particulars of the sale and whether you met the associated time requirements for the tax exlusion.

I agree that is a bit ambiguous. I got a 1098 from the sale of my home, but have yet to do my taxes to see how the reporting is done. Thankfully no capital gains taxes for me.