If you own rental houses or are thinking of buying a rental house it pays to consider your future selling costs. These costs can vary significantly depending on how you sell, when you sell, and what you do with the money.
We’ll start with seller’s closing costs. The big three are typically sales commissions, county taxes, and title insurance fees. I just sold a house for $290,000. I paid $4451 to the county as transfer taxes and I paid $1323 for title related fees. No real estate agents were involved so fortunately I avoided paying $17,000+ in commissions. As you can see these costs can put a large dent in your profits. They vary depending on the property location. Contact your local title company to identify the costs in your area.
The other significant expense associated with selling a house is federal taxes. These are much more complicated. With few exceptions, if your rental house appreciates you will likely pass some of this gain on to Uncle Sam. Here are three situations I’ll review. Of course, IRS rules impact each, as does your overall tax picture.
- You sell your rental and reinvest the funds in another rental taxes delayed.
- You convert your primary residence to a rental and then sell within three years taxes avoided.
- You sell the rental, take the money and go on a long overdue vacation taxes owed.
Stay tuned, I’ll cover these in depth over the next week.
I must add- I’m not a tax expert, always do your homework and then consult a tax advisor!