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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Live2Sail who wrote (42539)	10/3/2005 5:21:46 PM
From: GraceZ	Read Replies (4) \| Respond to of 306849

"I should say that the only way this was possible for us was that even though we hadn't paid down that much principal on the first home, it had appreciated to the point where we had a buttload of equity available. I hate to bring this up but they just converted what would have been a completely tax free gain into a taxable one. The IRS says you have to use the lower of two values to factor the basis for a rental property, either the FMV or the adjusted basis. I'm assuming that their adjusted basis is a great deal lower than the FMV unless they did a lot of improvements. It would have been better for them to have sold, taken the tax free gain and bought a similar property to rent using the proceeds. They can get around the big tax hit when they sell if they move back in (need to live in it 2 years out of 5) before they sell it or do a like exchange to another rental property.