It’s great to own a property, and everyone’s wish is to one day being a landlord/ lady. However, at some point in life, you’ll want to dispose of that property. When selling this property, it was previously a moment to smile, but it is no longer the case.
Strict lease terms, unpredictable tax rules, and wear and tear from your tenants are some of the things that will be a headache. But the good thing is when the time is right, and with the right approach, you’ll make a graceful exit with less disruption.
Defer Capital Gain Taxes with 1031 Exchange
You may want to unload your badly-performing rental property in a not-so-appealing neighborhood and move to an upcoming area. 1031 exchange helps you sell your property and buy another with more income potential without suffering the capital gains tax.
The catch is it has to be another investment property that you plan to flip. Once you dispose of your first property, you’ve up to 45 days to look for a similar property and ensure you close in 180 days. Apart from the timings, 1031 exchange demands that you follow other rules, and therefore, the first thing you’ve to do is get a qualified intermediary. The work of the intermediary is to facilitate the aspect of the exchange by following all the necessary steps.
Live In Your Rental Before Selling.
If you don’t want to parlay your profits using the 1031 exchange into a kind-like property, then move to your rental house and live there for some time before you sell it. All you need is to live there for at least two years, and you’ll pass the IRS ownership and user tests.
There are only two things involved in passing the test;
- You must have owned the home for more than two years or
- Lived there for more than two years as the main home in the last five years.
Passing the test gives you a through-pass to waive capital gains taxes of $250,000 when filing as a single and $500,000 when filing jointly. But if the rental investment is no longer fruitful, then you’d better unload and cut off your losses.
Give Your Tenants Ample Time To Vacate.
If you want to dispose of your property that’s still occupied, you’ve to negotiate with them and offer them an incentive, so they vacate. Do not do it forcefully. Sometimes you have that excellent tenant that you may want to use as a selling point- make sure you respect the lease terms.
You can also transfer the lease agreement to the one you’re selling to, and they can renew once it has expired. If your tenancy agreement is more than six months to expire, the buyer must accept it as part of the purchase.
Utilize Your Good Tenant as a Selling Point
An occupied property is better than an empty one. Many you will get serious buyers of your property if it’s already occupied. When you’re selling the property with a tenant or many of them, you’re selling to investors only, and thus you need to include information that is necessary for the investors.
Tell your prospects;
- How long the tenant(s) have been in place
- The monthly rent
- What’s paid consistently on time
- who covers the utilities
When you want to sell a rental property, you must get set with the necessary documents and the correct information. You should be able to convince the prospects that they’ve made the right choice. Again, utilize provisions like the 1031 exchange to avoid those punitive tax levies that could easily eat into your sale proceeds.