Re: capital gains on real estate


Mike wrote:
Here's our situation, we are in the favorable position of having 2 homes. We
are building a bigger home to live in and renting the current home.

A friend suggested that I sell the rented (current) home in 3 years because
the capital gains tax make keeping the property long term a bad move.

My brother in law says, keep the property and in 10 years buy another, more
expensive rental, using the rent from the previous unit and the rent from
the newest to pay the newest mortgage, thereby lowering my total yearly tax
nut (the rent from the old rental is not taxed profit anymore). Then, even
though we don't have a huge amount of cash in our pockets, our net worth is
climbing.

I hope I am explaining my situation clearly and I do appreciate this
conversation.


Mike, you have explained your situation quite well. Yes you don't have
to pay any tax on capital gains up to $500,000 (married filing jointly)
if you live in your house as a principal residence for at least 2 of
the last 5 years.

As to whether that's a good move as opposed to keeping your house as a
rental, you need to talk to a financial advisor (probably one who is
not your brother in law). I don't think anyone here can give you
advice on that.



"Mike" <mike@xxxxxxx> wrote in message news:U%GVf.702$I%6.636@xxxxxxxxxxxxx
We're renting our present home that we've lived in for 9 years starting
April 1st. The rent covers the mortgage and the house will be paid off in
10 years. We live in Las Vegas where housing prices are climbing all the
time. I've heard it's best to sell the home in 3 years to avoid capital
gains and use the equity elsewhere.

- Is it true that you have to live in the home for 2 of the last 5 years
to avoid capital gains?

- If that's true, does it make more sense to sell the home 3 years from
now to avoid having to move back in, or continue to rent the home for 10
years or so before selling to retire? We do not want to move back into the
home.

Thanks in advance for the advise.

Mike


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