I am selling my 4 rentals (on one city lot), had the price dropped to $775,000 at the end of May; the market is flattening; still getting viewers, but not very many.
I had a required appraisal that raised my base up to $739,000 based on 2021 sales because, at the time, in April, there were no multi rental properties recently sold.
I had one offer of $700,000 asking me to take back a $200,000 loan for 6% interest.
Now I can lower my price to $750K which would net $712,500 after realtor fees of 5%, $37,500, if it sold at that price. I can also wait this out at the current price until my contract with the realtor is finished; wait two months; contact the original person, a friend of a friend, who offered $700 K and accept that offer because there will be no realtor fee in December.
So, what should I do right now? It seems to me that those two scenarios are equal except for possible capital gains taxes. I will pay them if I sell at a price over $739K, I think… My question is: Do I pay capital gains taxes on the amount of the sale or on the net amount received. If it is the net amount received, then I would not pay capital gains taxes. That makes a difference to my bottom line.
Do I pay capital gains taxes on the amount of the sale or on the net amount received.
Neither.
You pay capital gains taxes on the amount of capital gains you have from the sale.
Your capital gains is (price_sold) - (cost_basis) - (cost_to_sell)
Since it’s a rental property, you had depreciation.
That depreciation decreased your basis in the property (increasing how much cap gains you will have when selling)
You don’t say how much depreciation you claimed on your taxes (or should have claimed on your taxes) - nor what you originally paid - so we do not know your cost basis.
Costs to sell would include anything/everything to sell - largest would probably be realtor fees. But could be other things as well, such as repairs/improvements done to make it more marketable (ones which you aren’t counting as rental expenses)
Since it’s a rental property, you had depreciation. That depreciation decreased your basis in the property (increasing how much cap gains you will have when selling) You don’t say how much depreciation you claimed on your taxes (or should have claimed on your taxes) - nor what you originally paid - so we do not know your cost basis.
I will point out that you have to recapture the depreciation whether or not you actually claimed it on your prior tax returns. Recaptured depreciation is the first part of the gain that’s counted towards your income, and recaptured depreciation is taxed at ordinary income rates, up to 25%, not capital gains rates. So at least part of your gains will be taxed at your marginal ordinary income rate or 25%, whichever is lower. You should read through IRS Pub 523 https://www.irs.gov/pub/irs-pdf/p523.pdf to understand how the sale of your rental property will be taxed. The section for figuring your gain or loss starts on page 7, and the section specific to gain or loss on rentals starts on page 13. I would suggest going through the worksheets.
comptche: “I had a required appraisal that raised my base up to $739,000 based on 2021 sales because, at the time, in April, there were no multi rental properties recently sold.”
What base?
"I had one offer of $700,000 asking me to take back a $200,000 loan for 6% interest.
Now I can lower my price to $750K which would net $712,500 after realtor fees of 5%, $37,500, if it sold at that price."
I strongly suspect that your net would be less.
“I can also wait this out at the current price until my contract with the realtor is finished; wait two months; contact the original person, a friend of a friend, who offered $700 K and accept that offer because there will be no realtor fee in December.”
First, are you certain that the $700k will be re-made, especially at that price?
Second $700k without broker’s fees seems to be less than $712,500 after paying broker’s fees, plus the time delay (at least 2 months plus the remaining term of your listing agreement). I fail to see the benefit of waiting for less money but perhaps you see something I do not?