Sometimes it happens. You bought a home or apartment building, and suddenly it’s costing you more than it’s worth. Between the mortgage payments, property taxes, utility bills, and unexpected repairs, it’s time to get rid of it. How do you do so? Thankfully, you have a few options, which we’ll share with you in this article.
One of the first things you may consider doing in order to get rid of a property that’s costing you money is to sell the property at a loss. How beneficial this option will be to you, however, will depend on whether or not you have occupied the property as your personal residence.
If the property is or ever was your primary home, then you will not be able to deduct any loss on your taxes. In fact, if you sell it for any amount above what you originally paid for the property, you will owe a capital gains tax assessed at both the state and federal level on the profit you earn from the sale.
To illustrate, let’s imagine you originally bought a home to live in for $82,000 and its value has since appreciated to $232,000. Even if you sell it for $150,000, for tax purposes you have technically made a $68,000 profit. Therefore, no matter how much a property is costing you, as you try to get rid of it, you’ll be on the hook for paying a tax as high as 30% on $68,000.
On the other hand, if the property you would like to get rid of is an investment property or a second home that you’ve never actually lived in, then you can sell the property at a loss and deduct the amount when filing your taxes.
Another option you have available to get rid of your property is to simply give it to a family member. Transferring real estate to a family member is as simple as filing a change of ownership form and deed with your local county recorder’s office. The IRS will consider this a gift on your part, and, so long as the property does not exceed $12 million in value, you will not owe any taxes.
Your family member, on the other hand, may be subject to a capital gains tax, if they plan on selling the property at any point in the future. This is because the original cost of the property becomes your family member’s cost of the property. Specifically, if you originally bought the property for $53,000, when you transfer it to your relative, you technically transfer it to them at that cost. When they decide to sell it for $200,000 because the property has appreciated, they will owe a capital gains tax ranging anywhere from 15% to 30% on $147,000.
This is not to say this is not a bad option. It’s simply one that you and your family member(s) will need to discuss before executing.
Finally, another viable option you can leverage to get rid of a property that’s costing you money is to donate it to a nonprofit. Before you write off this alternative as too altruistic, there are many tax benefits that come from donating a property.
For starters, as soon as you sign the property over to a charity, they become responsible for taking care of all the monthly costs and expenses, providing immediate cash relief for you.
Secondly, by donating real estate to an eligible charity, you avoid paying any capital gains taxes. This is an especially viable option for someone whose property appreciated in value significantly since they first bought it.
Furthermore, you become eligible for receiving a tax deduction equal to the fair market value of the home. So if you donate a property that appraises for $200,000, then you can deduct that amount from your taxes for the next five tax years. A certain cap may apply on how much of the deduction you can take each year. This will depend on your income, so you’ll want to check with your attorney to see what that may be.
Otherwise, to quickly get rid of a property you don’t want, donating it to charity can be the best way to go.
One of the first donations Giving Property handled for Michigan Radio, a local nonprofit organization, came from a donor who inherited his father’s old motorcycle repair shop. Years out of service, the property was costing the son thousands of dollars in property taxes. Not only was it located in a rough area, it required a significant amount in repairs to bring it up to sellable condition, and he was living out of state.
Weighing his options, the son decided to donate the property. Acting as an intermediary, the expert real estate team at Giving Property was able to find the perfect buyer in a timely manner and sell it for $50,000. These proceeds then went to his father’s favorite radio station, which serendipitously was Michigan Radio.
If you have a property costing you money that you need to get rid of, contact us at 844-277-HOME or through our form: https://givingproperty.org/contact-us. We specialize in working with donors like you to gain back the peace of mind they deserve back.