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We bought a house in South Denver in 2003 for $245,000. We ended up moving and have rented the house since. Our current rent gives us an extra $1,000 which we put towards our new mortgage.

We owe $157,000 on the house and Denver is a hot market right now.

We are trying to determine if we sell the Denver house for $400,000 or keep renting it.

We would like to understand the tax burden and other issues we might have in selling and paying the house off.

We purchased our new house last year in TX and owe $380,000. I could really use some advice.

Thanks!

  • In purely speculative considerations, yes, I believe you should sell it. Why? Home ownership has been hitting new lows since the 2008 crisis, but despite that, prices have returned to the highs of the bubble. I believe this is due to a newly inflated credit bubble / reaganomics and fed induced global debt bubble that cannot continue. Home prices will come down. – Comptonburger Feb 3 '16 at 0:00
  • can we assume that you have been depreciating the property during the time it has been a rental? – mhoran_psprep Feb 3 '16 at 0:40
  • @mhoran_psprep you don't have to assume. It doesn't matter. – littleadv Feb 3 '16 at 6:17
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Here's the tax situation:

- Cost basis: $245000
- Depreciation: ~$93000 (assuming 13 years rental at 80% improvement)*
- Adjusted cost basis: $152000
- Sale price: $400000
- Sale expenses: $40000
- Net sale income: $360000
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- Capital gain: $208000
- Depreciation Recapture: $93000
- Net Capital gain: $115000
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- Tax on depreciation recapture: $23250
- Tax on the capital gain: ~$27500 (assuming 20% cap gain rate + medicare) **
- Total tax: $50750
----------------------------------
- Total sale proceeds: 360K
- Minus tax: 51K
- Minus debt: 157K
- Net proceeds: 152K

So your total tax will be about $50K, give or take several thousands. Your total proceeds (actual cash in the pocket) will be $152K (after repaying the debt and the tax).

  • Read about depreciation recapture and how it is taxed.

** Read about capital gains brackets and how they work in correlation with your other income.

Decisions? That's on you.


Obviously the numbers are just rough estimates. You'll need to get a proper tax adviser (EA/CPA licensed in Colorado), and probably a realtor, to get to some more realistic calculations.

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