Selling or L/O my own home

[Sparetimeinvestor 0]

My wife and I have decided to build a house. We have lived in the house 2 of the last 5 years. As I understand we pay no tax on our equity if we sell.

 

What if I were to refinance the home to pull the equity for my downpayment for the new house and then keep my first home as a rent to own.

 

Any ideas as to what tax implications this would be? Is it better for us to just sell or keep as a L/O for 1-2 more years? Will we end up paying more in tax then by keeping it?

 

Overall I think we just want to sell and move on, but it also would be nice to have another house still in our asset column of our financial statement.

 

Kurt...

[Dave T 0]

If you otherwise qualify for the capital gains exclusion on the sale of your primary residence, you have up to three years after you vacate the property to actually complete the sale and preserve your entitlement to the capital gains exclusion.

 

Refinancing does not create a taxable event, because the money you borrow must eventually be repaid.

 

By the same token, if you convert your primary residence to a rental property for a couple of years before you sell, you can offset your rental income with all the rental property expenses of ownership and rental operation (to include depreciation) and still maintain your eligibility for the capital gain exclusion if the property is still sold before your two of five year window expires.

 

A sale at this time will bring depreciation recapture in play (allowed or allowable depreciation is recaptured, even if you did not take the depreciation expense during your rental use period).

 

Use the property as a rental for three years and one day, and you no longer own a former primary residence. Instead, you have an investment rental property and capital gains taxes are in play.

 

I would elect to keep the property in my "asset" column as a rental only if the property's income is greater than the property's liability. In other words, if you don't have a positive cash flow, sell the property and take the tax free profits.