Whether you’ve held out for the long run and it’s time to cash in on your savings, or you’ve come to realize your investment isn’t what you thought it’d be, it’s time to think about selling your investment property. Selling an investment property could have a lot of implications and repercussions, so you could find yourself getting tripped up along the way. Here are some commonly asked questions and inquiries about selling investment property.
Some of the most common questions relating to the sale of investment property pertain to tax implications. What hand does Uncle Sam play in taking a cut of your real estate profits?
* What is capital gains tax?
Capital gains tax refers to real estate sales; it’s a tax levied on the profit or proceeds from the sale of a property. There are, however, ways to wiggle through and around loopholes, particularly regarding rental properties. Before you list your investment property for sale, understand capital gains tax and what you’ll be responsible for paying in taxes on the sale of your investment property.
* Can I deduct agent commissions, legal fees, or costs of prepping the house for sale?
It would make sense that as a business transaction taxed for profit, that you’d be able to deduct your expenses for preparing the house for sale. Unfortunately, this is not the case. You also cannot deduct the costs for services such as real estate agents or attorneys.
* Can I deduct tax lawyer/accountant?
The law does allow room for deducting costs associated with taxes, tax lawyers, and accountants, so while you might not catch a break on the agents and attorneys, you do get a slight kick back thanks to the tax guy or gal.
* Can I deduct home mortgage interest?
Yes, home mortgage loan interest is tax deductible. Not only can you celebrate the deduction of home mortgage interest come tax time, but you can also deduct interest for home improvement loans, interest for credit cards used in the goods and services of the rental property, and for personal loans when obtained for investing in the property.
Real Estate Agent Interview Questions
Other questions deal more specifically with finding the right real estate agent to handle the sale of your investment property. Agents have different specialties, certifications, and qualifications. The agent can add to your profit or cut into your bottom dollar, based on how they conduct the business of your transaction. You may want to ask your seller’s agent the following:
* Have you ever worked with this type of investment property?
* How much do you charge as a commission?
* How will you price my investment property for sale?
* How will you market the property?
Finicky with Financing
Some sellers of investment property are concerned that if they opt for certain types of financing, they may end up getting the property back if the buyer defaults. It’s happened; it’s a warranted concern. Talk with your financial advisers and real estate agent to determine what financing options you should consider from buyers interested in purchasing your investment property.
Investors typically own multiple properties – one that’s a primary residence and at least one more that’s used as an investment property. The costs and taxes associated with selling an investment property could eat up any profit to be earned. However, there’s a lot to gain by selling one property to reinvest the funds into another more rewarding transaction. And then there are those sellers who only have one investment property intended as a preparation for retirement and sell when it’s time to sell, not when there’s an opportunity to reinvest.
If you’re considering selling to reinvest, make sure you do your homework first. Ask your accountant and your real estate agent about the taxes, deductions, and potential gains of selling one property for the sake of investing in another. Although it may seem at first like a smart decision to sell one property that brings in a certain income for another property that has higher earning potential, the capital gains and costs associated with selling the first property could eat up all the profits before they see the light of day for reinvesting.
Your real estate agent is the best source of information about the local community and real estate topics. Give Rachel Tullier a call today at 225-278-7595 to learn more about local areas, discuss selling a house, or tour available homes for sale.