I purchased a house out of foreclosure in April, 2013 (7 months ago) for $70,000. I have invested approximately $15,000 in it. I currently have two purchase offers pending for my asking price of $118,000. One offer (Offer "A") is straight cash. The other offer (Offer "B")is for the potential buyer to sign a contract to rent the house for 6 months (@$750/month) while he gets his finances in order, and then purchase the house in April, 2014. Initially, this seemed like a "no brainer"...but then, a friend pointed out the the Capital Gains taxes would make a major difference if I held on to the house for at least 12 months. He anticipated that I could pay as much as 30% in capital gains taxes on my profit if I "flip" the house immediately, with the capital gains taxes dropping to, as much as 15% if I hold the house for at least a year. I anticipate turning a $24K profit after deducting the cost of improvements, attorney, closing, etc...
My wife and I are both retired. My retirement is $80K/year, and my wife's is $65K/year. We own two rentals which gross $16K/year. Last year, my wife and I filed seperatly, with the rental income being included with my tax return.
My question is: Would it be better to accept the cash offer A, and pay the higher capital gains- and definitely have the money in hand, -or take offer B and pick up $4500 in rent and hold the property until April, 2014 (with a degree of risk while he gets his "financial house in order"?
Rick in West Liberty