Have a Tax Question? Ask a Tax Expert
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.
I would say that it is better to rent than to sell
This is because you are able to deduct losses against active income, up to $25,000
What are the tax benefits to renting? If we would sell and make a profit, what are the tax consequences?
You will have losses due to depreciation
If you sell and make a profit, then you pay capital gains tax on the amount that you sell the house for that exceeds your purchase price
So what would the taxes be if we made a profit of $50,000?
How long have you owned the property?
Just a month and a half.
Okay then you would pay tax at your normal income tax rate
do you know what tax bracket you are in?
Not sure our bracket - but we made $110,000 last year.
If you hold for a year or more, the rate is favorable - 15% for those with incomes under $400K per year and 20% for those with income above that amount
You'll most likely be in the 25% bracket, depending on your deductions
so, 25% of $50,000 or about $12,500
So even though it will take longer to make our money back renting, it's smarter than selling, right?
I think so. I'm a fan of renting
If we decide to sell, how long do we have before we have to reinvest the money before we pay taxes on it? Or do we even have time?
The only way you can defer the tax on a sale is to do a 1031 exchange which is where you exchange this property for another property
there is no ability to avoid tax through reinvestment otherwise
Okay - thank you so much for your help. I think we are going to rent it.