Are you a real estate investor? Even if you’re just thinking about picking up your first investment property, this is for you.
The following is an excerpt from my last e-book, “Save Thousands Every Year as a Property Investor.” If you’d like a free copy of the entire book it’s yours!
Just go here, follow the steps, and it’s yours to keep: Save Thousands Every Year as a Property Investor
What I’m about to share with you will not only put some extra money in your pocket for two years, but if exercised as I outline for you it will save you many thousands of dollars in taxes.
Ready? Read on!
Hold and Rent your Last Private Home for Two Years
No kidding, this is a big favorite of mine. I can promise you that the next time my wife and I move, we’ll be taking advantage of this one! It excites me so much I need to slow down, take a deep breath, and explain this calmly…
Ready?
There is another magic number to know, Section 121. Well, you don’t really need to know the number, just what it means.
If you sell a property that you lived in for two of the past five years, Section 121 exclusion allows you to waive $250,000 of the gain as taxable income.
If you happen to be married, and file jointly? That’s $500,000!
Let me help you wrap your mind around this with an example, okay? Here goes…
Mr. & Mrs. Lucky Taxpayer bought and moved into a full-time home in the spring of 2017 for $320,000. Their other investments did well for the first two years, so they bought themselves a larger home, and moved into it on June 1, 2019.
They had already taken my advice and made plans to turn their 2017 home over to a property management firm to place it on the rental market for a couple of years, and they happened to find the ideal tenants that loved it so much they renewed their first-year lease for a second year. The rental revenues received over 24 months after tangible expenses amounted to about $35,000, which they were able to reduce for tax purposes with depreciation of $11,636 to just about $7,000 in taxable income each year.
These tenants moved on up, so to speak, into the wonderful world of home ownership themselves and moved out in 2021. So, the Taxpayers made the decision to sell.
The market was kind, and they enjoyed appreciation in value over four years that netted them $680,000 on the sale of their home. The gain on the sale of their property was $360,000.
Under Section 121, because they lived in the home 24 months of the 60 prior to sale they are able to treat this entire amount as non-taxable. They are required to add back the depreciation they had taken in 2017 through 2019, but this recapture was entirely non-taxable as well, because the total fell handily within the $500,000 married couple exclusion.
They received about $23,000 in non-taxable income from depreciation, and waived tax on $360,000 for a total of about $383,000, which at a typical middle-class effective tax rate of 15% saved them a whopping $57,000-plus in taxes!
See why I get excited about this?
Would you like to learn more? I provide 7 additional strategies in my new book, and one of them will save you thousands of dollars EVERY YEAR you’re in business as an investor.
I hope you found this valuable. If you have a second, let me know, okay?
Let me save you scrolling back up to the top for a free copy of the book:
Save Thousands Every Year as a Property Investor
Thank you, have a most amazing day, and enjoy that extra money!