We're considering selling our rental house. It was a personal residence converted into a rental.
Purchased for $500K. Additional $75K put into remodeling.
Mortgage is $505,000. Interest rate is currently 2.75% (variable rate resets every year at LIBOR + 2.25%)
Monthly payment is $1675 (interest only loan until 2018, then ammortized over 20 years). Monthly rent is $2500.
I think we can get $625K for it this spring. We'll put a little work into getting it market ready (resod the front lawn, paint touch ups, etc.) and stage it, so maybe $5-10K to be safe. I'm considering offering it to our tenants for $600K now. I have no idea if that's feasible for them, but worth a shot? And I figure I can offer them the savings we'd get out of not having to list it.
We've taken $70K of depreciation on the property. I understand I would pay taxes on that amount. I hope I understand this right, but would I then also pay taxes on the net proceeds minus the basis? So $625K minus commissions, etc. - $575K. In which case it would really only be the depreciation recapture being taxed. We'd consider a better rental in the future, but with no concrete plan for that yet we wouldn't do a 1031 exchange.
Is selling this property the right thing? The market in our area is doing well, but I'm worried about another down turn having experienced that before, so I want to take advantage of it now. We're building a personal residence right now and would rather free up the equity in the rental than take out a construction loan. The rate is great, but that will change in the future, and we only have a few more years before the loan turns to P&I, at which point the payment will be way more than the rent.
I'm a little scared about kicking out the tenants, not having rent, and braving the market, but I think it's time to cut ties with this anchor. Curious if you all agree and if I'm calculating the taxes correctly (or missing any areas for tax savings!)