Buying a Rental but can't get a tenant
QUESTION:
Hi, I bought a rental property but it looks like I can't find a renter for the amount I need to even be within $500 a month of my expenses.
If I go ahead an sell now, will I only be subject to capital gains and not straight income tax since my intent from day 1 was to rent the place out? I can't be expected to rent out the place and lose $600 a month can I?
(I will of course suffer the 3 months interest penalty from the lender)
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david ingram replies:
If you can show a real effort was made to rent and your situation has changed, capital gains would likely be in order.
I do not know how much your 3 months interest penalty is but it would likely pay the after payment on $100 a month for 3 or more years.
i.e. $100 amonth after the tax deduction is only $60 to $75.00 a month.
If your interest penalty is 3 months of a $200,000 mortgage at 6% , then your interst penalty will be $3,000 and only half is deductible against the capital gain meaning it will be at least $2,400. $2,400 / $75.00 a month equals 32 months.. $2,400 / 60 = 40 months. In the meantime, there would be three rental increases.
You might want to think about it a little more. �
Hi, I bought a rental property but it looks like I can't find a renter for the amount I need to even be within $500 a month of my expenses.
If I go ahead an sell now, will I only be subject to capital gains and not straight income tax since my intent from day 1 was to rent the place out? I can't be expected to rent out the place and lose $600 a month can I?
(I will of course suffer the 3 months interest penalty from the lender)
--------------------------------------------------------------------------
david ingram replies:
If you can show a real effort was made to rent and your situation has changed, capital gains would likely be in order.
I do not know how much your 3 months interest penalty is but it would likely pay the after payment on $100 a month for 3 or more years.
i.e. $100 amonth after the tax deduction is only $60 to $75.00 a month.
If your interest penalty is 3 months of a $200,000 mortgage at 6% , then your interst penalty will be $3,000 and only half is deductible against the capital gain meaning it will be at least $2,400. $2,400 / $75.00 a month equals 32 months.. $2,400 / 60 = 40 months. In the meantime, there would be three rental increases.
You might want to think about it a little more. �
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