Selling a rental property

[Steven Eidmann]

Rental is in Colorado, I am a CA resident.
in 2010 my wife and I returned to CA from CO. Kept the house we had purchased in 2005 due to slow sales market. House has been a rental ever since. We now think we may not retire there. Paid 500k in 2005, current house value is about 850k based on comp. We file CO tax every year, pay zero due to expenses and depreciation. Don't really make anything much in cash flow, except to pay expenses.

If we were to move back into house for the 2 our of 5 year rule, then sell, can we expect some tax advantages for it becoming our main residence again vs just selling it as a rental and getting hit for income tax ect?

Please advise best route.

 

[LdiJ]

Rental is in Colorado, I am a CA resident.
in 2010 my wife and I returned to CA from CO. Kept the house we had purchased in 2005 due to slow sales market. House has been a rental ever since. We now think we may not retire there. Paid 500k in 2005, current house value is about 850k based on comp. We file CO tax every year, pay zero due to expenses and depreciation. Don't really make anything much in cash flow, except to pay expenses.

If we were to move back into house for the 2 our of 5 year rule, then sell, can we expect some tax advantages for it becoming our main residence again vs just selling it as a rental and getting hit for income tax ect?

Please advise best route.

Yes, there would be some tax advantage to doing that. You would have to prorate the exclusion between rental time and primary residence time, and you would still have to recapture depreciation, but it would help. You would still have to pay some tax, but not as much.

 

[STEPHAN]

Have you thought about a 1031?

 

[LdiJ]

Have you thought about a 1031?

OP, google 1031 Exchange and read up on it before you reply.

 

[Taxing Matters]

Have you thought about a 1031?

For the OP's information a section 1031 (aka like-kind) exchange only helps you to swap one piece of investment/commercial property for another. It is not something that helps if you want to sell the property and take the cash. When you trade the properties, a like-kind exchange simply defers recognition of the gain until you sell the property you gained in the trade.

 

[FlyingRon]

You can move back in, but you don't get the full exclusion even if you meet the 24/60 test. You have to adjust it by the non-qualified use period. If you bought in 2005, moved out in 2010, moved back in in 2018 and sold in 2020, you have 15 years of ownership and 8 years of nonqualified use so you only get to take about $233K between the two of you.

Cash flow, mortgage, property taxes, etc... are all irrelevant.

 

[james tan]

Rental is in Colorado, I am a CA resident.
in 2010 my wife and I returned to CA from CO. Kept the house we had purchased in 2005 due to slow sales market. House has been a rental ever since. We now think we may not retire there. Paid 500k in 2005, current house value is about 850k based on comp. We file CO tax every year, pay zero due to expenses and depreciation. Don't really make anything much in cash flow, except to pay expenses.

If we were to move back into house for the 2 our of 5 year rule, then sell, can we expect some tax advantages for it becoming our main residence again vs just selling it as a rental and getting hit for income tax ect?

Please advise best route.

i am a real estate broker in california. i would advise you to consult a cpa for further details.

however it is my understanding aside from that 1031 or moving back to the rental another option would be to sell on an installment or structured installment basis. this way you can distribute the cap gain and taxes over a number of years.

that may spread your tax burden.