I have a home in Hollywood Park, which is a separate city in the north side of San Antonio. It is in a great location, a 3/2 on a quiet street,

About 2 years ago, I purchased a second home in San Antonio, and it has been my primary residence for the past two years.

My CPA is advising me to sell my Hollywood park house to avoid paying capital gains taxes. He informed me that if the residence is not my primary residence for two of the last five years, then I would have to pay 15 percent capital gains. So basically I have until next summer to sell it.

It is such a bs law imo. But I don't see me moving back anytime for the next 20 years or so, and I'm paying property taxes in it.

Just wondering if someone else has come across this, and any lessons learned or direction would be appreciated.

Red Pear Realty said:

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You also don't pay capital gains if you never sell.

If you aren't renting it, I would sell immediately. If you are, and aren't cash flowing, I'd also sell. Otherwise, I'd let that bad boy ride until the next low interest rate period, do a tax free cash out refi, and buy more houses.

Good luck!

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That's really helpfulI I am not renting it, it's been a second office for me more than anything else, plus it took me a while to move,

But I really like that cash out refinance idea and buy more homes. Or maybe sell iit, and buy more homes on a new basis and get into the rental business.

I would imagine your cash-out rate will really suck compared to the current rate you have on that property.

Diggity said:

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I would imagine your cash-out rate will really suck compared to the current rate you have on that property.

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It definitely would. The house is paid off, so I don't have a rate on it. But yes, if I sold it, and say used it for 20% down on say 3 other houses, that rate would suck on those.

I think I will sell it. If I buy another house with the proceeds, it will be on a new capital gains basis. Its a bad rule that forces you to sell a home.

htxag09 said:

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It's really an exception to a rule. Capital gains taxes are a standard thing. If you buy a stock and sell it for profit, you'll pay capital gains on that profit. It's an exemption of the rule to benefit personal homeownership.

And not 100% sure what you mean by will be on a new capital gains basis? If you don't live in that home it'll be subject to capital gains as well.

Finally, I've always heard if you sell a property and put that money into a new property it's also exempt from capital gains. No personal experience with this, though.

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That makes sense on the exception to the rule on capital gains. I guess I looked at in a negative way, as in its mine why do I have to pay capital gains. But I understand and that was a good explanation.

On the capital gains basis: My realtor told me they would list my house for $525,000. I paid $170,000 for it 18 years ago. With this exception, I get an exclusion of $250,000 if I lived in the house for 2 out of the 5 years. So 170,000 + 250,000 I would not get capital gains tax on. That leaves $105,000 I could still get capital gains taxed on. But minus the improvements with the bathrooms, kitchen, metal roof, limestone sidewalk, etc., I'll come close to that $105,000 so I should have very little capital gains.

So my CPA tells me: Sell it for 525,000. Then if you buy a house with that money for $525,000, that is the new capital gains basis. So I would get capital gains taxed on anything that appreciates above $525,000. $525,000 would be the new basis, not the original $170,000 basis. But I only have until September of next year to sell it as that will be the expiration of my two out of the past 5 years it being my primary residence.

This exception is different than a 1031 exchange. It goes back to the original basis. Meaning, I sell my house for $525,000, then I do a 1031 exchange and buy another house for $525,000. Then that second house I sell 5 years later for say $600,000, and decide to cash out, then my capital gains tax would be $600,000 - $170,000, as it goes back to the original basis.

Ok, yes, got you. Yeah it basically resets the purchase price the capital gains are based on.

To me it comes down to why you want this property that isn't bringing income. And why it would make sense to sell and buy a new property just to avoid 15% on that $250k at some point down the road….if and when you decide to sell even though you don't want to now…..

15% on $250k is $38k, not chump change but it'll probably be close to a wash w/ realtor fees, moving costs, etc, no?

htxag09 said:

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Ok, yes, got you. Yeah it basically resets the purchase price the capital gains are based on.

To me it comes down to why you want this property that isn't bringing income. And why it would make sense to sell and buy a new property just to avoid 15% on that $250k at some point down the road….if and when you decide to sell even though you don't want to now…..

15% on $250k is $38k, not chump change but it'll probably be close to a wash w/ realtor fees, moving costs, etc, no?

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I agree. Seller pays the realtor fees, that is 6% as it is and totals to $15k for $250k. So right, it is $38k - $15k = $23k of savings. Plus moving costs, etc.. You are right, its almost a wash I guess.

Partly, my own personal forecast is dark days ahead on housing prices. I don't see home prices appreciating much at all. In the past, the appreciation on the house would almost always exceed the real estate taxes. Now I think it will be the reverse for a while. I may be wrong, as that has been a hot neighborhood in the last 10 years.

So no, I don't want to sell it, my original plan was to keep it for 20 years, and maybe when my kids get older they might need a house.

But the annual real estate tax, plus the maintenance cost on it, and I guess the final kick in the but was the capital gains tax to kind of push me to sell it. Now I think house prices will stay flat, so I will be shelling out money on it and getting nothing back on it.

You said the list price would be $525k….6% is $31,500

By selling now to save capital gains, you're saving 15% of $250k = $37,500

To me maintenance costs, property taxes, etc. are a wash because we're talking about buying another property.

But, yes, those costs are real. Which is why I agree with Jamie's original post and if you aren't renting it and cash flowing it sell it now.

htxag09 said:

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You said the list price would be $525k….6% is $31,500

By selling now to save capital gains, you're saving 15% of $250k = $37,500

To me maintenance costs, property taxes, etc. are a wash because we're talking about buying another property.

But, yes, those costs are real. Which is why I agree with Jamie's original post and if you aren't renting it and cash flowing it sell it now.

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Dang, you are right! 6% of $525,000 is $31,500. So it works out to a $6,000 savings LOL. I didn't realize that.

I appreciate the direction. I am a little more at peace about selling it now. I need to get it on the market. I was going to wait until March 2024 because house prices seem to be better then, but I might as well clear it out and get it on the market.

I know Breanne would love to help you if you decide to sell, and she would save you an extra 1.5% on your sale costs. My contact information is in my bio if you'd like to discuss.

Red Pear Realty said:

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I know Breanne would love to help you if you decide to sell, and she would save you an extra 1.5% on your sale costs. My contact information is in my bio if you'd like to discuss.

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Thank you for the offer. I have been using my realtor though for 20 years. If I am one thing, I am loyal. I sincerely appreciate it and the direction.

All good. What did your realtor think you should do?

She advised me to follow the advice of my CPA regarding the capital gains.

She said Hollywood Park is kind of an outlier with regards to the overall market, and when a good house hits the market, the external factors don't affect it as much. She said People kind of look for a home to pop up in Hollywood Park. She said if I waited until March 2024, a lot more homes will hit the market and a lot more competition. She said right now, hollywood park is getting strong prices.

Wyoming, your CPA is correct on all accounts. But you may have glossed over what Red Pear mentioned in his initial response.

You might not ever have to pay capital gains........How?

On joint assets in Texas (a community property state) on the death of either spouse your property and/or assets get a stepped up in basis on the date of death to the then current value of the property.

Meaning; Original cost of home 155k, home value on the death of first spouse is 500k, sell house the next day at 500k there would be NO capital gains tax due!!!! So you did mention that possibly your kids might inherit the home. If they do after the death of either parent they could inherit it at the NEW cost basis. However, if you give them the house before either one dies (while you are living) they inherit the house at the original cost basis of 155k.

1031 exchange is another way to delay the tax bill but is difficult to do as there are many rules you must follow and timing issues that must be met to successfully complete a 1031 exchange.

Lastly, you need to put in your timeline the time it will take to sell your house as the market has come to a stand still and your 500k expectation may not actually materialize. Cheers!

Wyoming said:

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I have a home in Hollywood Park, which is a separate city in the north side of San Antonio. It is in a great location, a 3/2 on a quiet street,

About 2 years ago, I purchased a second home in San Antonio, and it has been my primary residence for the past two years.

My CPA is advising me to sell my Hollywood park house to avoid paying capital gains taxes. He informed me that if the residence is not my primary residence for two of the last five years, then I would have to pay 15 percent capital gains. So basically I have until next summer to sell it.

It is such a bs law imo. But I don't see me moving back anytime for the next 20 years or so, and I'm paying property taxes in it.

Just wondering if someone else has come across this, and any lessons learned or direction would be appreciated.

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So, wouldn't 3 years from now be the expiration of "2 of the last 5 years" and not now?

That is a great point about inheriting it at no capital gains tax. That would be pretty awesome if I hold onto it for another 30-40 years or so. That is interesting.

And I agree on the 500k expectation. Prices seem to be dropping recently, even in SA. I figure I need to give myself a 120 day window from listing to closing. It has to be closed by late August 2024.

Yes, with the capital gains expiration it is next August for closing at the latest. So I do have some time, but homes are sitting on the market longer recently.

I checked last night, and it seems prices are dropping some.

It will take me at least a month to move the rest of the stuff out of that house, probably 2 or 3 months. I need to get the interior repainted, so at the earliest I could list it in November, which is probably the worst time to list a house.

Wyoming said:

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Diggity said:

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I think I will sell it. If I buy another house with the proceeds, it will be on a new capital gains basis. Its a bad rule that forces you to sell a home.

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If you don't live there it is not a home , it is an investment property

Wyoming said:

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So my CPA tells me: Sell it for 525,000. Then if you buy a house with that money for $525,000, that is the new capital gains basis. So I would get capital gains taxed on anything that appreciates above $525,000. $525,000 would be the new basis, not the original $170,000 basis. But I only have until September of next year to sell it as that will be the expiration of my two out of the past 5 years it being my primary residence.

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Your cpa sounds like a commissions based fa. If you sell the house and pay a little or no taxes on it, it becomes money. Just like whatever other money you have. You then reevaluate your allocation in various market segments and decide if you want to put some or all or all plus some of your other money into anther property, or a business, or stonks or gold or bitcoin or whatever, but at that point forget what you paid for the property and what you sold it for because that will impair your judgment as to how to invest.

If you think the real estate market is going to crash then sell immediately, take advantage of the primary residence capital gains exemption to pay as little taxes on it as possible, and sit on the cash until the market crashes and you can buy the whole block for 500k.

I think you are right, and I have thought the same thing. I remember my mom telling me years ago, whenever you sell land, the money you get from it will go through your fingers like sand. Just buying various things like vehicles, or even if you allocate it into various things like stocks or whatever.

I can remember my grandparents who have been deceased for 40 years or so basically indoctrinating me since birth to never sell "land", which they meant as property. I was only around 9 or 10 at the time.

I have been provided some great advice though on this thread, and would be comfortable with whatever decision I decide. But I think I will give it to next spring before I decide to sell or hold onto it.