Archive for the ‘real estate’ Category

Claiming a Tax Exemption When Selling a Home That is Now a Rental

Wednesday, October 10th, 2012

I’d like to share with you a recent question that I received from a reader of my blog. The question was:

“I lived in my primary home for two years and now it’s a rental, can I sell it without paying capital gains?”

My “short” answer is:

That depends on how long the house has been a rental.

No need to push when  selling your primary residence

By Way of Background Information

The 1997 Taxpayer Relief Act was a great boost for average people who wanted to sell their home and buy a new one. It was also a great boost for investors. Couples are allowed to exclude up to $500,000 of the capital gain on the sale of their primary residence. Single individuals can exclude up to $250,000.

In other words, the sale of the house is never reported on your federal IRS forms if the capital gain is less than the $500,000 and $250,000 limits.

This exclusion is based on compliance with two requirements:

1.)  The home must have been the primary residence for both spouses during two of the last five years. The two years do not have to be consecutive but if you rent out the primary residence for more than three years you would be required to occupy it again for two years.

 2.)  The exclusion is available only once every two years.

What if you sell you house and your capital gains exceed the established limit?

Capital gains above $250,000 for singles and $500,000 for couples are taxed at the applicable rate.

What if you sell your house before meeting the two year requirement?

If you qualify under one of the “unforeseen events” listed in  Internal Revenue Service Publication 523 Selling Your Home, such as a job change, illness or an unusual hardship, you can still qualify for a prorated exclusion.

The Ideal Strategy for the Pathologically Conservative Investor

Typical conservative investor.

Utilization of this tax exemption is the safest investment strategy for the conservative investor who wants to take few risks. This is the type of investor who wears both suspenders and a belt to hold up his pants. They like to play it really safe.

Under this strategy, the investors can qualify for the least expensive type of  loan, the owner-occupied loan. There is no need to worry about tenants destroying your rental property or not paying the rent. You completely control the investment by living in the property yourself. When you sell, you have the opportunity to make up to $500,000 tax-free profit every two years.

So, following that long-winded, yet surprisingly informative, background spiel, my “final” answer to the question is:

If you have lived in your house 2 of the last 5 years, you are entitled to take the exemption.

 

Coming Soon!

How to Turn Your Home into a Rental House, Instead of Selling It

Turn Your Home into a Rental Property (video)

Tuesday, November 23rd, 2010

What is the most powerful thing in the world?

An idea that has been planted in a person’s mind.

To improve your economic security you should plant in your mind the idea you should never sell a house. Converting your home to a rental house can provide long-term rental income and economic security to you and your family.

 

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Turn Your House into a Rental Property: Podcast of radio interview with Dan Ramey

Thursday, September 23rd, 2010

Here is my radio interview with Dan Ramey of WBEX in Chillicothie, Ohio.

I described the process that I use to turn a house into a rental property. I advocate that people use this when they are ready to buy a new house. Instead of selling their old house, they should just turn it into a rental property.

The average American buys 7 houses during their lifetime. If they kept all their old houses as rentals, they would have a pretty substantial monthly income by the time they retired.

Interview with Dan Ramey 09-15-2010

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Joe Sabah, Get the Job You Really Want, and fixer upper houses

Monday, July 26th, 2010

In the book How to Get the Job you Really Want and Get Employers to Call You, author Joe Sabah says,

Are you willing to pay the price to have your life be the way you really want it? We all know there is a price to be paid for everything in life. If we stay in the same circumstances we are now it may cost us our life. Serious illness can be caused because of stress, the stress of being in a job we hate. Take the time to consider what price you are paying now for what you have in your life.

For me, the perfect job was buying fixer-upper houses and renting them out. It provided me the independence and financial security that I desired, and I could do it while still working my 8:00 to 5:00 job.

If you don’t like your job, if you are having your hours reduced, or if you lose your job altogether, it may be time to consider establishing a business that will provide you with some additional economic security.

How would you answer Joe Sabah’s question, “What price would you be willing to pay to have the life you really want?”

How to Learn the Skills to Repair Houses, part 1

Tuesday, September 25th, 2007

I recently received a question asking, “My background is not in the building trades. How do I learn the required skills to start a business in repairing houses and renting them out?”

In terms of how to learn to repair houses, I will answer that question in two parts. The first part today, and the second half of my answer will be in a subsequent blog article.

How to learn the appropriate skills:

1. Learn by doing. When Orson Wells directed his first movie, “Citizen Kane,” he said that he felt “like a kid with a giant train set.” One nice thing about buying a fix-up house is that it’s like having giant practice house, where you can practice learning to do repairs. Since the house is already pretty well beat up, its OK if you make a few mistakes along the way. You can always go back and correct them later.

My philosophy is that the best way to learn is by doing. Granted, you have to gradually work your way up, if your are beginning near the bottom. At first you will have to hire out for most of the moderate or difficult repairs. Make sure you watch, or assist in doing, the repair when you pay someone to do it. That way you can do it, or at least do part of it, the next time you encounter the same situation.

Just last week, I had to hire someone to repair my air conditioner in a house that I am living in and fixing up at the same time. I took time off my 9-5:00 job to be on the roof with the repairman and observe what he was doing. I saw all of the tests that he performed with the multi-tester to identify what was wrong. The problem turned out to be two capacitors that were blown. If a similar problem arises in the future, I will know how to check and replace the capacitors myself.

If you have to pay someone to make a repair for you, make sure that you get your money’s worth by watching the repairman, and learning how to do it yourself.

2. Take community college classes. Most community colleges offer courses in the building trades – plumbing, electrical wiring, air conditioning and furnace repair, and woodworking. For a fairly low price, you can learn how to make repairs like a pro by taking these classes. I have taken several classes and they have been well worth the investment of time and money. Besides leaning the skills in a supervised environment, you also learn how to use the correct tools in the proper manner. As part of the program, students are required to take an 8-hour OSHA course in how to be aware of work site dangers, to do work in a safe way, and to avoid accidents. I highly recommend that anyone who does repair work take the OSHA class.

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How to Make Money in Real Estate – Stick to the Basics

Friday, September 14th, 2007

One of the surest ways to make money in any endeavor is to follow in the footsteps of other successful people. Astronaut Neil Armstrong followed in the steps of John Glenn. Comic actor Ben Stiller followed in the steps of his show biz parents Stiller & Meara. The same is true in real estate. Plenty of people have gone before us.

Buying lower-priced fixer-upper houses, using your own time & effort to fix them up, and renting them out has been a tested and true path to generate wealth & security.

The four chief benefits of purchasing fix-up houses are:

1) if you buy a house in need of repair, a fixer upper house, you pay less for it than for a house in good shape. Since you paid less, you can take out a smaller loan and have lower monthly payments.

2) By doing repairs yourself (as much as you are able to), you save the money you would have paid others, and you learn new repair skills.

3) By renting it out, you get a house that is constantly increasing in value (by an average 5% per year) the same time the rents are going up.

4) When you get older, your loans will be paid off (or close to it) and the rental income you receive are like a pension for your retirement.

Granted, it is hard work to find a house, make repairs and learn how to deal with tenants. But you also learn valuable technical and people management skills that you can use in other parts of your life, and pass along to others. Mostly, there is a great sense of satisfaction in your accomplishments, a stronger sense of security, and more income, which means more freedom.

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My List of House Repair Books – The Best of the Bunch

Thursday, August 23rd, 2007

**Book Update** My forthcoming book entitled “Fix ’em Up, Rent ’em Out: How to Start Your Own House Fix-up and Rental Business in Your Spare Time” is in the final stages of production and will be available at Amazon.com in September 2007.

In operating a house fix-up and rental business in my spare time, I have found the following books to be very useful. If I encounter a repair that I have never done before, the books on the link below are my guides.

In 400 B.C. Archimedes said, “Give me a lever long enough, and a fulcrum upon which to place it, and I shall move the world.” Your tools and books are your lever and fulcrum. Once you have them there will be no stopping you.

House Repair Books – The Best of the Bunch

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