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Making The Decision To Sell Investment Property

Summary: A lucky investment property owner has the opportunity to flip a property and make a profit. Ilyce helps the owner think through their options for making a sound financial decision.

Q: I own an investment property (my first) and I am not sure whether I should flip it immediately, hold and rent the property for a year or so and then flip it, or move into it and use it as my primary residence for two 2 years and take the profits tax free.
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I have about $225,000 in the property and I know it will sell for as much as $375,000 if I listed it today.

I’m not sure what to do. Do you do telephone consultation? If so, what is your availability and the cost for some of your time?

A: I don't do phone consultations, but here's my two cents on your fortunate situation.

First, congratulations on finding a piece of property that was so undervalued that you've been able to create over $100,000 in value in less than a year.

Before you decide whether to sell now, hold the property for a year (in order to qualify for long-term capital gains tax on the profit) or move into it and keep it all tax-free, you need to figure out whether you want to keep doing this as a business and if you do, how often you're going to do it.

If you know you want to keep buying and selling property, and if you've already identified another potential investment, you may want to consider finding a real estateattorney who can do a 1031 tax free exchange, also known as a Starker Trust, for you.

A 1031 tax free exchange would allow you to sell this property now, and purchase a replacement investment property. The benefit is that you would defer all tax owed until after you're done with the next investment (or, at that time, you could set up another 1031 to exchange that property and continue to defer the tax).

The downside is that with a 1031 tax free exchange, you have to live by some fairly strict time limits. For example, you have to identify the new property 45 days within closing on the old property and you have to close on the new property within 180 days. Blow those deadlines, and you’ve blown the trust.

You will also need to hire a third party company to hold the funds and make sure they are not commingled with any of your other cash. Your new property, along with other rules, will have to at least equal in value the sales price of the old property.

If you decide this is too much hassle, and know you won’t be looking for another property for a few years, you should consider moving into this property so that you can keep all of the profits (up to $250,000 if you're single, or up to $500,000 if you're married) tax free.

In your case, if the profit is $150,000, you'd owe about $22,750 in profits if you sell after owning the property for 12 months. But if you move into the property and keep it for 2 years, you'll keep that cash and any more, if the property continues to appreciate in value.

I can’t make the decision for you, however. But, I’m cheering you from the sidelines.

NOTE: This column is distributed by real estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
Article Source:http://thinkglink.com
Article By: Ilyce R. Glink
Views: 981

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