Pay Capital Gains Tax or Buy Another Property?
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- Опубліковано 30 вер 2021
- Pay Capital Gains Tax or Buy Another Property?
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Rofl, this guy...... Dude, if you insist on the 400k property, take a 90k mortgage. He'll have over 75% equity and he makes 220k PER YEAR!! This guy could pay off an entire mortgage in a year or two and move on with his life. He could own a 400k property outright in a year or two while saving the capital gains in the 1031. Don't lose 60k in taxes because you are scared a tiny 2.5% mortgage that you don't even need to keep beyond a year or two. I understand the debt free mindset, but cmon, this is easy.
So Dave preaches that you need to buy a rental property FOR CASH... period.
@@johnSmith-uz8nl which is Terrible advice
@@aaront936 I do agree. I feel 30 % is good enough
Mortgage for rental property will be higher, but I agree it’s that’s a valid option.
@@aaront936 Yep I totally agree that it's terrible advice! You can miss out on so much just trying to save money to buy property, because by the time you save it, the property has gone up 20%!
It’s better to spend a little more to buy the right property than to cheap out and buy a dud.
This is so not true. When you buy a rental in a nicer area your ROI is usually lower but the appreciation is usually more over time. So, what is your goal... cash flow or do you want to flip. I own 8 rental properties... 2 are in the ghetto and the other 6 are higher end (4 of them are in a loft building... old mill buildings). I make about 34% ROI for my unit in the ghetto and I make 5.5% ROI for one of my property not in the ghetto... I don't have any mortgages.
@@johnSmith-uz8nl very true. That's the kicker for most though, if you have a mortgage then the appreciation is on the whole property even though you only put a percentage down so ROI compounds bigly with appreciation. When you own the property outright, that appreciation doesn't do as much for your ROI. Not saying right or wrong, but yes if you pay cash then you need the cash flow for sure and I agree it's better in the tougher areas
@@Gibb591 Don't know what is better. Unfortunately I feel you get a better tenant with a better unit (this has been my experience). Also, I don't see real estate doubling in the next ten years regardless of how upscale your area is... the problem of buying today at these prices.
Any property in California in $310,000 is going to be a run down fixer upper. Forget about finding a multi unit property
I am in the same situation right now, I’ve got a rental that I want to sell but if I did it would cost me around $30,000 in capital gains. It’s tough to give the government that kind of money.
Dave would not allow this but I'm telling you anyway - if you get a cash out refinance you don't pay taxes on the cash you took out. Take that as you will.
@@mostHumblePersonAlive haha, yeah as an avid Ramsey listener for the last 8 years that would never happen 😂
@@mostHumblePersonAlive Great idea! But for me, the rental is paid off and I can’t refinance and take cash out if there’s no mortgage. 😣
@@md-wg4bz Your missing the point.... and that is increasing your wealth with realestate. It is nice upgrading and paying off your upgrade and doing it again and again and again. Our Uncle did this and he finally purchased a building with 35 units, he must have done about 5 1031's before he got to this point.
@@md-wg4bz you can prob do a HELOC
This is so stupid. Instead of eliminating your emergency fund and all your working capital, take out a small 15 year investment mortgage for $50k. If you can rebuild a $30k emergency fund in just a few months, you can payoff that $50k loan in 6 months. At 4% interest, if it takes you a full year to payoff the loan, you take on an extra $1100 in (tax deductible) expenses. So, net cost in the $700 range... if it takes you a full year. Less if you pay off quicker.
Peace of mind seems worth it to me.
That’s what I was thinking
He only has 13 days left, That ship, as attractive as it is, has sailed
Are there additional exclusions from capital gains for medical reasons? My wife and I live with her mother who has dementia. My wife and I are moving but we have to bring her to take care of her. Is there an exemption that she can get on the capital gains when the mother sells the house? Other then the standard $250k and reducing the gains with capital improvements and real estate commissions. Thanks
We bought a vacant lot to build a home but ended up selling it and bought another one. The sale came after we had bought the other one. We sold it for 19000 and bought the other one for 45000. That’s the deal with capital gains on this. Thanks.
This is California. Prices are high.
You don't want to buy a rental, that will be hard to rent out.
You can't just buy a cheap property. And than hope you can find tenants. Hope doesn't pay the bills.
You would think Dave knows this?
This guy sounds like he knows what to look for in rentals.
It also sucks when the government establishes a moratorium on collecting rent. No thanks.
@@georgeahacker No one is talking about that. ANd 95% of people paid their rent.
Dave doesn’t get the west coast real estate market at all. There’s people bidding on every house now.
@@ponolovefarms3926 It’s the same for the East Coast as well.
@@adamhavercamp Dave thinks you can buy houses for under 100k, and not need to do any kind of work to it.
If you can pull it off, you do what I did: you identify the exchange property FIRST by making a deal with the owner. So, that might mean paying a premium for the owner to wait for your home to sell first. This way, no stress from a ticking clock.
I'm a Realtor in Sacramento CA. Jim is right $310,000 will be tough to get a rental property in hot Sacramento.
Not impossible though.
Surprised Dave isn't more attuned to the issue. Once you sell, you have 45 days to identify. It may be that his identification period has run, so now identifying a cheaper home does no good. And you only bother identifying properties you actually think you can acquire. Tough to ask this guy to find a new property in 13 days. A small amount of debt is the way to go.
Exactly what I was thinking. Would rather have a small note than no cash on hand. The cash they have is already low for my taste.
This isn't the Midwest Dave.. Sacramento/Cali housing market is stupid fomo right now
I was thinking the same. Even in NW Washington State finding something under $400k that isn’t a craphole is a unicorn, much less Cali 🤦🏻♂️
The market’s hot and It got hotter by the day while the tenant dragged his feet on vacating.
Much ado about nothing. This caller has 13 days to make an offer and have it accepted. He then has to complete the purchase within 180 days of the initial 1031 transaction. Plenty of time to obtain a loan if need be, although depleting the emergency fund and making a cash offer has its advantages. This caller also sounds knowledgeable enough to take care of business without having to consult with a radio personality. That Ramsey Kool Aid is powerful stuff, indeed....
I think he just needs to identify. He doesn’t even need an accepted offer.
Guys like this caller make me laugh. Just take the loan. It will cost nothing and you will pay it off in a second. You avoid all the tax and it is only gonna cost you like $1000 in interest to save $60k in taxes lol
Very good point, also any expenses related to that purchase is also tax deductible!
exactly back then rates were so low
Not to sure but either way your going to use the money. Whether its pay taxes or take from your savings. I think.
Why not get a loan so u won’t miss the deal and pay it off as fast as u can if you don’t want to keep the debt
I would take a small mortgage to buy the house and pay it off in a less than two years. I wouldn’t deplete my emergency fund over this. I mean the dude makes 220k per year, that’s very doable especially only owing 90k if he buys a 400k house which there are more of.
Unless I'm missing something, his capital gains tax should not be $60k on a sale of $310k unless he paid nothing for the house, correct? You pay cap gains on the GROWTH not the principal. Also question if he should be at 20% rate vs. 15%. But I'm not a tax expert. I like Dave's point of making good biz decisions before tax decision.
We sold a rental a few years ago and had to pay full taxes on all of it because every year on our taxes the property gets depreciated and you get a small tax savings so if you own it for 20 ish years or more it is fully depreciated by that time. He has probably owned it a very long time. . .
@@cherissef5297 Ah yes, forgot about depreciation.
@@t.moorefinancial8938 Even then... 15% x 300K = $45K.
@@johnSmith-uz8nl Yeah that's why I think he's assuming 20% cap gains rate, but if he's married (said "we" at the beginning) filing jointly with their stated income, it should only be at 15%.
@@t.moorefinancial8938 nope. Depreciated property gets taxed not as capital gains but as ordinary income, because you depreciated the cost against your ordinary income in the first place. It does however have a cap of 25%, not the normal 37% highest ordinary income tax bracket.
Should have cash out refinanced at %95 LTV then sold. Then the gain is minimal
I would take that money 1031 exchange and go to Detroit or at least buy a portfolio out there . You can get about 3-6 homes that rent from 1-1.2 a month .Per Home .
You would also have to drive really far to deal with any issues and have a totally different clientele living there
but Dave says don't be a long distance landlord??
Also everyone has debt you never can pay off a water bill or a light bill or cell phone. Super wealthy has debt and trying to eliminate it completely means you miss out on light.
Question. Bought home back in 1998 for $110K n now sold for $285K. I’m single n live there over 20 years. My primary home. Do I exempt capital gain for single 250K ???? Please help
You will not have capital gains
Ramsey is suggesting
someone should pay capital gains on $110,000 so that they can have a cash purchase? Buy the house for $380,000 and get a loan or better yet, buy multiple houses. Avoid the capital gains tax, get the house or house as you want and have the tax write off from the loan. Why would anyone take every penny of their cash to buy one property? Read "Rich Dad Poor Dad."
This guy has the cash to upgrade... but he doesn't want to deplete all his funds. I think he should deplete his funds and if he is short for what ever reason he can always get a personal loan to bridge the gap before he obtains cash again. I was zero in the bank for 7 years when I was throwing every penny towards my mortgages. NOW, after all my mortgages are paid off, I am saving like $8k a month.
Is it true there’s a way to avoid capital tax on a property you own for 10 years or more, that you have used as a rental that you never lived in??
I've never heard of that! I highly doubt it!
It has to be your primary residence
We can call this one "flexing Friday"
Probably should’ve thought of that before you sold.
He did. The tenant wouldn’t get out, and the market got hotter and hotter every day.
2 years ago should have refinance cashout with those low rates..
Take the 1031 exchange and buy oil royalties with it, less work and easy money.
oil royalties? I think this is really bad advice.
Thanks for the show, Ramsey. I have a question about capital gain tax from the last house that I sold. I moved to Texas from Seattle and purchased with cash on the new home. Which price of the house was less than half that I sold in Seattle. Is there a way to not pay big capital gain tax? Huge Thanks in advance for your response.
Don’t buy the wrong property just to avoid paying the taxes………..pay the capital gains tax.
Why is it so illogical that you can find something for $360,000 but not $310,000? There's going to be a cut off number no matter how you slice it. Maybe $360,000 is the absolute low end.
just get a mortgage bruh
It amazes me why anyone would seek advice, certainly of this complexity from a TV personality. Get a CPA or legal rep dude to help you through the steps of a 1031 exchange, especially with the nuance involved.
He’d have to pay capital gains on $310k ONLY if he already depreciated it all, which means he would have either been gifted it or owned it for 27.5 years.
It wouldn’t even be capital gains if you depreciated it. It would be ordinary income taxed at 25% max rate. Here’s the reasoning: if you depreciated against ordinary income, the depreciation recapture must be taxed as ordinary income.
Capital gains are based on the net profits on the sale of a rental property which is calculated on the original cost basis of the asset (purchase price plus qualifying expenses) subtracted from the final selling price (less qualifying selling expenses). Without further details we can only assume that $310k was his net profit from the deal.
Buy a rental property out of state
Take a loan... $50,000 mortgage is nothing. Keep your cash and pay it off as fast as you want.
They make $220k a year and has $310k cash so this is clearly Analysis paralysis.
Stick with the stock market. Real estate sucks. Too much overhead, taxes, repairs, no write offs if you make more than 150,000 income, no eviction in California. Do I need to say more? I have owned 7 homes. Believe me.
Taxes and repairs ARE write offs on rental properties
Finance the rest of it Jesus Christ you’ll have a 90% equity stake lol
You only pay capital gains on your gains tho? If he sold the property he should’ve gotten more
Yea, that part didn't make sense to me... Unless the previous unit had a mortgage on it & the $310k is the gains. That is unlikely though, as this guy is overly concerned w/ following Dave's "cash-only for investment properties" rule & willing to completely deplete is cash on-hand in order to do so. Or he is wanting to only spend the gains to avoid taxes? He should have $1mil+ to purchase with. Some missing pieces for sure.
Dave Ramsey is talking out of his @$$! As always. Borrow the difference.
I never understood people's obsession with real estate.. what's wrong with a mutual fund or an etf? No tenants and toilets to deal with.
Yes, I thought having my rental property was great until Covid came onto the scene and the eviction moratorium came along. Never again!
You have to pay capital gains on the taxes if he buys mutual fund or etf. If he buys another property he can do a 1031 exchange and not pay as much tax
@@mostHumblePersonAlive when you sell mutual fund or etf, you just any part you want. you can't sell half of the house each time. you don't have fixable for the house.
@@mostHumblePersonAlive Understood fully. My issue is with real estate itself. When you look at the maintenance and operating costs, tenant issues, and your time, very few retail investors make much money on these things at all.
Yes indeed. Not to mention the caller sounds crazed when he talks about how hot the market is there but still sounds desperate to get in on a rental property immediately to avoid the capital gain that he waited too long on. Sounded like he held his cards for too long with only one strategy.
This guy doesn't think twice about evicting presumably perfectly good tenants. This is exactly why landlords have such a terrible reputation.
He has the right to sell the property.
Its his property not thiers
Making excuses
Boohoo, 220 k a year
"I despise taxes" says the co-host.
I despise people who don't think they're required to contribute to the system that keeps all of us wealthy.
I sold my rental in SF and paid ~$100k in taxes, on a gain of ~$700k. I paid off my primary house and I have money in the bank. Happy to pay taxes on my gain, only wish the super wealthy would pay THEIR fair share, but attitudes like yours are one cause of government to be under water.
Pay your fair share then. It’s never enough for govt, they have a spending problem. The govt sure cares for us and knows best what to do with my money. Makes sense
Get out of Commiefornia and head north.
I stopped watching when he Mentioned his incredible income, 🙄
yes, he was definitely flexing.
@@JustinCase780 I think his entire call is stupid. Nothing is wrong with flexing but he was like venting.
Facts lol smh
Dave the BILLIONAIRE will do ANYTHING to avoid paying taxes... cause paying taxes is for suckers like us. TAX THE RICH THEIR FAIR SHARE... ENOUGH IS ENOUGH.
Feel free to give the Government all your money while complaining.
😂 dude.. in America the rich pay the well fare but in a socialist country like Sweden it is the working class that pays the well fare. You got this one messed up
@@bellman1094 The top 400 richest people in America are paying a tax rate of less then 9% (federal and state). What I laugh at is when people who have NOTHING fight so the filthy rich can continue to avoid paying THEIR FAIR SHARE.
@@ClaxtonBay123 Who do you think pays for the army, road, social security... it is OK to pay taxes and I don't mind paying mine. The problem is the filthy rich are not paying their fair share. I'm OK with lowering the tax rate for the poor and middle class... it is the RICH that are not paying their fair share.
@@johnSmith-uz8nl so exactly what is your taxation proposal? I hear a lot of complaining but not a lot of critical thinking about possible tax proposals to fix the issues. Have you looked into how the rich pay such a low percentage of their income? Do you know if it’s even income they’re getting taxed on or if it’s capital gains? Are you including the corporate tax rate of 21% right off the top in that figure? I assume not.
I’m not against raising the capital gains rate on those with a ton of money, but can we at least lower the corporate tax rate so money and jobs can flow easier and less economically restricted? When the billionaires die with all their stock in their name they’ll end up paying the estate tax of 50% anyways, or donate to charity to avoid it.
Another day another tax dodgers.
Another day another federal regime scam artist trying to find a way to scam the middle class out of their time and energy