Oops some people didn’t study American history hard enough 
Bay Area SFHs are good for appreciation, but not for rent. The Cap Rate for SFH is very low as the home is appreciated. The rent is stabilized and the rent increase depends on Apartment complexes and Multiplexes before coming to SFH.
Above all, bay area rent is high now, everyone tries to buy some home to match rent.
What about the comps near your properties?
Capital gain tax rate is 20%. Plus California tax, maybe the total tax rate on 500k gain would be 150k.
If Trump can lower the capital tax rate a little, tax liability will be even less.
It’s nice to take the tax free 500k gain. But we need to use the correct capital gains tax rate to compare alternatives
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If Trump reduces Long term capital gain to 12.5% and removes AMT, this discourages selling (or taking CG exemption) !
10351 N Portal Ave sold lower than the peak.
19681 Merritt Dr sold lower than the peak.
10408 Colby Ave sold lower than the peak.
Zillow estimates for above SFHs are trending down. So are mine.
All are sold in 2016, definitely lower than 2017 prices. This shows all these 3 homes prices are increased than 2016 !
We see different picture from the same chart. 2017 prices are lower than the peak price in 2016 too.
In an up trending market, the transacted price should be above the trend line not below because zillow estimate lacks.
Do not see zillow chart like what we see in finviz !
Even during 2008-2011 worst downturn, Cupertino hardly had any foreclosure and prices were just 5% below max price.
Just noticed, only one SFH home, One Condo and One TH in market at Lynbrook school area !
With low inventory in Cupertino area and high stock prices, no one is going to get a home less than 2016 prices !
Hi Jil,
Let’s say I make 500K gain if I sell now (been primary house for 8 years). Another option is to sell after 3 years (primary house for 8 years and rental for 3 years). Lets say that the capital gain then is 700K. How does the proration math work ? Is my prorated tax exempt capital gain = (8/11) * 500K or is it (8/11)*700K ?
Rule: If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period. It doesn’t have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.
You can claim primary home deduction.
Actual rule came during 2009 period. Total years owned 11 years, Primary 8 years and rental 3 years.
If total gain are 700k, prorate 700*8/11 = ($509k) but 500k exemption as primary home and rest can be balanced with rental investment sch E.
It is up to you to go whichever way you like. If this is real 700k gain, you are safe to try 3 years as rental. After 3 years, you may stand to gain additional appreciation.
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You should be able to rent it out for up to 3 years after min. of 2 years of primary residence period and still qualify for full capital gains exclusion (250 single/500k married). The rental period occuring AFTER primary residence period does not count as “non qualified usage” under IRC 121. If you move back into the property after having it as a rental, then the gain will be prorated.
See these articles for further clarification on this subject.
http://www.moneyradio.org/www/pdf/3092.pdf
http://www.floresattorneys.com/popup-newsletter.php?PageID=294798
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