The Wednesday Wellness threads are meant to encourage users to ask for and provide advice and motivation to improve their lives. It isn't intended as a 'containment thread' and any content which could go here could instead be posted in its own thread. You could post:
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Notes -
Does financial wellness count? Hoping to have some tax-knowledgable folks in here.
Scenario: I have 2 properties.
Property A:
Property B:
I plan to divest myself of both properties within the next 5 years and relocate.
I wish to avoid capital gains taxes on the appreciated value on Property A. (I don't care as much about the gains on Property B). This would be 15% of $300k, so around $42,000. From what I see, I can do this two ways:
Tools at my disposal include a parent-owned lakehouse that I could nominally buy and rent, and a decent amount of liquid capital that we both can deploy (along with extremely high trust between parties, as you'd imagine).
It seems like Option 2 is going to be a big pain. I'd prefer to keep renting the house for another 3-5 years instead of 1.5, but based on cap gains that's going to be 28 months minimum of treading water. I also hate losing the cheap money of that mortgage and booting out good renters who would probably prefer to stay in the house another 1.5 years.
In contrast, my second home's rate is... not great. An ARM that is great now and won't be later.
Frank thoughts and reality checks are appreciated.
Much better with the rewrite. It seems like a somewhat complicated situation. Since you're talking about the 2 in 5 rule, this implies that property A was your primary residence in the past - for at least 24 months of the last 5 years.
So you could sell both properties, and essentially choose which one to pay cap gains on. As only one property actually has capital gains, this is no problem.
It sounds like you've already fixed on selling property B (your current home).
As to Property A, you could sell within the next 1.5 years and avoid cap gains. But you're losing a 2.75% mortgage and good renters. Personally, it sounds like you have a good setup with this property, and you should just keep it. Rent will increase over time more quickly than your costs. And with depreciation, I assume the current rent income is mostly or entirely tax free.
When your tenants move out, you can 1031 exchange and avoid paying capital gains taxes. If you're lazy you can 1031 exchange into a triple net lease. This might be better than renting out your parent's lake house. The risks of renting to unknown people are pretty high in many jurisdictions right now.
Just my 0.02.
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