Question On Capitol Gains
I own property that I may want to sell. I do not need the cash right now, and I am wondering if there are advantages or disadvantages as far as capitol gains are concerned to selling at this point. Bacically I am trying to decide to sell or hold. I have been contacted by a prospective buyer, but have not advertised my property as being for sale.
How long have you owned the property, and how long have you lived in it? You may want to be the lender and finance it yourself to avoid the tax bite, if one exits.
Talk to a CPA about your situation.
There is any number of questions that you need to answer for yourself to make that decision. It sounds like you have answered one of them: do you need the money. BUT, is it that you dont need the money because it is not necessary for your day-to-day living expenses or you dont need the money for additional investment. If you have lots of cash - good for you! If not, there may be an opportunity cost of keeping the money in a property that has had a nice run up in value (hopefully) and not putting it into something that you will realize more gain on from this point forward. Sort like how some people view the stock market (dont sell unless you have somewhere better to put the proceeds OR it's time to take profits because you think there may be a downturn soon).
As I started saying, there are other questions that include whether you will have capital gains (property has increased in value) and you want to defer the taxes with a 1031 exchange, do you want to do a lease option with the property and not sell it outright for now, etc.
Have fun, welcome to the real estate party!
Molotov
I guess I left out some important information in my original question. As I said already, I am not in need of the cash right now. The property in question is not my home, it is a building lot in a very desireable area. I have owned this lot for a number of years, and it has appreciated wonderfully. As far as an investment is concerned it has been stellar. I was contacted out of the blue by a party looking for the type of property I own. This property is a very finite commodity in this area, and as such increases in value far faster than other building lots in my area. I do not mind paying the property taxes on this lot, in addition to the property taxes on my home. That scenario is working quite well. The question I do not seem to be able to resolve right now is the sell/hold question. I know I will have a significant capitol gain tax liability. What I do not know is, if that liability is, at this point in time, one that is higher or lower given the capitol gains rules as they stand right now. Will there be any advantages to holding given the direction of capitol gains tax rules? I know I could build on this property, livel there for 3 years, sell, and claim a gains exemption. I'm not too interested in doing that. I am looking for the wisdom of other investors in resolving my questions. I guess what it boils down to is -- Will changes in the capitol gains tax rules change to my advantage if I hold? Or are the current rules such that selling now would capture an advantage that will not be there in the future?
Quote:I guess what it boils down to is -- Will changes in the capitol gains tax rules change to my advantage if I hold? Or are the current rules such that selling now would capture an advantage that will not be there in the future?
Ebels,
Future changes to the capital gains tax rules are already written into the law. While we do not know what Congress will do about repealing the tax cuts already enacted, we do know that the current budget deficit climate makes it very difficult to argue that capital gains tax rates should be even lower than they are now.
If you are in the 25% tax bracket or higher:Until December 31, 2008, the maximum long term capital gains tax rate is 15%.
On January 1, 2009, the long term capital gains tax rate increases to 20% (but only 18% for property purchased after December 31, 2000 and held five years or more prior to sale).If you are in the 15% tax bracket, or lower:Until December 31, 2007, the maximum long term capital gains tax rate is 5%.
From January 1, 2008 through December 31, 2008, the long term capital gains tax rate is ZERO -- for this year only and for this tax bracket only.
On January 1, 2009 the long term capital gains tax rate increases to 10% (but only 8% if you have held your property five years or more prior to sale).It appears that if you happen to be in the 15% tax bracket in 2008, your capital gains tax will be zero. This is the only tax advantaged reason to continue holding your property.
Digression - you dont mention it - I assume you know of 1031 exchange.
You can buy into a Tenant in Common office building with the money from your land, and not pay any tax on the roll over. Property can be managed by a property manager. You just collect your payments. I assume you know this but since you didn't mention it I thought I would.
Predicting future tax is not easy in my view.
Will Bush be re-elected or thrown out by people demanding a change in taxes? My crystal ball is not working - how about yours?
The residential building boom will or will not continue.
Residential Real Estate will or will not do the same as the internet stocks.
Commercial real estate will or will not continue to slump.
et cetera ad infinitum