Yeah the 6% would be substantial but I can get it listed for $500 bucks on the MLS so that would be something. I feel selling a property like this you might be able to get away with a lower fee to the buyers agent? Or perhaps selling to a fellow invested where both of you handle the sale sans agent.
Taxes though.... I think I have about 20k in deprecation, so paying my marginal rate on 120k feels like highway robbery!
You might want to talk to an accountant. Typically, the taxes aren't at your marginal rate. The 20k in depreciation recapture would be at 25% no matter your tax bracket and the capital gains (assuming long you've held more than a year) would be at 15%.
This is actually a common misconception. The depreciation recapture is taxed at your marginal rate or 25%, whichever is less. (Unless this was changed in the new tax bill but I don't believe it was).
I believe you are incorrect. Here are 2 articles saying it's 25% even if your marginal rate is less than 25% -
https://www.biggerpockets.com/renewsblog/2015/08/23/depreciation-bite/
https://www.katehorrell.com/understanding-depreciation-recapture-taxes-on-rental-property/
No, he clarifies two years later in the comments:
"BRANDON HALL on SEPTEMBER 17, 2017 4:27 PM
@ Mike
You didn’t get a reply because I didn’t see your comment 🙂
If you are in the 10% bracket, your depr recap rate is 10%. If in the 15% bracket, your depr recap rate is 15%. If in the 25% bracket or above, you pay a 25% rate.
HOWEVER – keep in mind that the depreciation erodes the basis in your property, meaning it increases your gain which increases your taxable income. You can be happily sitting in the 10% or 15% tax bracket, sell a property, only to find that because you held it for so long your basis erosion from depreciation produces a large gain placing you firmly in the 25% tax bracket.
I have seen investors sell property at a loss yet still report a taxable gain due to basis erosion via depreciation. Example:
Buy a property for $100k, sell for $95k, but you took $15k of depreciation during the hold, thus your basis is $85k, so you actually have a $10k GAIN ($95k selling price – $85k basis).
When you look at the Sch D worksheet, you’ll notice it focuses on taxable income. In my 15% taxpayer example in the article, you will notice that the depreciation over the hold period was $32,730. The property was held for ten years. Assuming, though unlikely, the net gain was $0 AND the taxpayer had $0 of other income, the taxpayer would only pay 15% on the $32,730.
However, that’s unrealistic, so I calculated at the 25% rate as the taxpayer likely has other income and capital gain on the 10 year hold.
Apologies for not explicitly explaining that."
Depreciation recapture at lower of 25% or marginal rate.
Often, the sale of a property will push you into the 25% rate, which is why it's used for estimates.