Tax Strategies for Properties You Sell

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on-sale-nowOn June 30th, Megan Hughes and I did a real estate webinar. We were flooded with questions and couldn’t get to them all in the allotted time. Here are some more of the questions! To see the entire webinar, please go to

Q: To sell or not to sell? I have a home that is paying for itself but not cashflowing. Should I sell? How much will it cost me tax wise is I sell?

There are a lot of things to consider before you make the decision to sell. Your gain or loss will be determined by the following formula:
Sales Price
(Cost of sales)
Add: Accumulated Depreciation

If you have gain, you’ll have a tax on the accumulated depreciation at the depreciation recapture rate. The rest will be taxed at your ordinary income tax rate.

If you have loss, it will be an ordinary loss.

First, consider what your tax consequences will be. Then take a look a the investment itself, where do you want to invest your money? In an inflationary time, the historically best investments are gold/silver and real estate.

I suggest you consult with both a tax advisor and a financial advisor to help you make the decision.

Q: What if a person buy a property for cash, never put it into service, and sells it at a loss two years later. Owner was a passive investor the first year and an active investor in the following years.

Just based on what you have said here, you have a capital loss. If you haven’t sold it yet, put it in service. In that way you can have an ordinary loss that you can immediately take against your other income.

Q: Income less than $100K. Property was reported on a Schedule E.?Can the initial investment amount plus depreciation be taken on the tax return once the property is sold?

When the property sells, you’ll calculate your gain/loss based on the formula a little earlier in my post. The basis may be the amount you paid, less the immediate deductions you took plus any improvements. It could also be adjusted because of a partial sale or rolled over basis with a like-kind exchange.

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