Author Topic: When to sell? A capital gain question.  (Read 1267 times)

Prepube

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When to sell? A capital gain question.
« on: September 20, 2015, 03:04:29 PM »
I've got a big decision to make next year.  I have 3200 sf of office space close to downtown Denver.  I bought it in 2003 for 75/sf, and it has roughly doubled to about 150/sf in today's market. We recently decided that we would leave our business (i.e. retire), which currently pays us about 160k per year.  We owe nothing on the office, and the property taxes are about 6500 per year.  We can rent it for about 20/sf and will net around 25k if we keep it rented (I already have interested parties who would sign a long term lease).

So the question is this: will I pay more in capital gain taxes if I sell it during a year when I am still employed, or will I do better if I wait until 2017 when I will be living mostly off of savings?  In other words, if I sell in 2016, will my tax burden be higher?  I'm eventually going to sell it, regardless, but I am struggling with the timing of it and I don't have a good grasp of capital gain rules.  The income would be nice to have over the next few years, but it's not vital early in my retirement.

Any opinions about this scenario?  Did I give enough info for you to form an opinion or recommendation?

forummm

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Re: When to sell? A capital gain question.
« Reply #1 on: September 20, 2015, 04:05:51 PM »
Yes, you will pay more in CG taxes if you sell during the year you have other income.

Vinivedivichi

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Re: When to sell? A capital gain question.
« Reply #2 on: September 30, 2015, 02:59:27 PM »
You should look into the CG rules.  I'm a tax CPA but I don't do personal taxes.  A few things you should consider:

1 - the CG rate is currently based on your gross income (something like 0% if your in the first couple of brackets and 15%/20% if over).  I'm not sure if real estate would qualify for the 0% rate and/or if the value of your property would factor into the rate but it's definitely worth looking into.

2 - if it was a business property you likely have been depreciating the building.  If you've owned it for that long, a decent part of your gain will be recaptured depreciation.  I actually think there are special rules for depreciation recapture on buildings used in business so that it's not all taxed as ordinary income (I think it's 20%) so maybe this is not as bad as it sounds. 

3 - if you are locked into a 15% CG rate, then it may really not matter from a tax perspective whether you wait or whether you sell now.  If it's capital gain, and your rate is set, then it's not like you need to worry about brackets.

Vinivedivichi

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Re: When to sell? A capital gain question.
« Reply #3 on: September 30, 2015, 03:00:03 PM »
btw, as I said I am just throwing out concepts and I do not work with these rules myself so take it with a grain of salt.