The life of a landlord has so much more to it then collecting rent checks on the first of the month. Don’t be ashamed if you have come to the conclusion that it’s not for you anymore. You should be given high praise for trying something as challenging as a rental property. Before you sell the property you must first make sure it is the right move. Answer the following questions and it will help your final decision.
Why do you want to sell?
You may have had a steady stream of bad tenants or maybe you are moving across the country. The answer to this question might be easy but it might not be. It is a great idea to talk with a successful landlord in your area to see how they handle their business. In the end maybe the reason you are selling is the direct result of something you can change. And this change might drastically improve your situation and feelings towards your rental property.
Do you know about 1031 exchange?
Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.
For more information about 1031 exchanges you can go to the IRS.gov
What will your capital gains taxes be?
If you are a first time landlord you may not realize that capital gains tax is going to cost you more then on your personal residence. The amount depends on how long you have owned the rental property. Less then 12 months you are in short-term capital gains territory. Long-term gains apply if you hold it for more than a year.
How to calculate this goes beyond the scope of this article, but you can find the information you need by following the links below…
Is selling a Tax Loss vs Tax Gain?
Let’s assume you do expect a tax loss from selling a rental property you’ve owned for more than a year. That loss will be a Section 1231 loss. It certain circumstances this can be good for you. The losses can be used to reduce income. Also you may have a net operating loss. If the Section 1231 loss is large enough to reduce your other income below zero. If any of the net operating loss is left over after going back two years, you can carry the rest forward into future tax years to offset future income (for up to 20 years). Alternatively, you can choose to not to carry it back and just carry it forward for 20 years.
Do you want the headaches of a rental property anymore?
The number one reason landlords sell their rental properties is because there are just to many headaches involved. From evictions, tenants not paying, tenants constantly calling to fix issues or just having trouble filling your vacancies. A bad rental can bring a lot of stress into your life and can affect your family and health. There is no shame in selling and moving on.
