Capital Gains on Rental property

[Arch_horn]

Hello All,

I just started to do some research and found this forum...so here's my first post:

My wife and I own a rental home in Austin. We bought it as our home in 2000 and moved to Dallas in 06...turning it into a rental.

We are now about to have our second child and the market is looking good in Austin, so I'm thinking of selling it.

The Facts:
Original purchase price = $90,000
Improvements made to property = $100,000
Existing mortgage = $187,000 (some old debt was rolled in a refi)
Property Taxes based on value of $266,000
Approximate selling cost = $300,000

We have approximately $60k in debt (some credit card and mostly student loans)
I would also like to make improvements to our Dallas house.

So I'm not sure if it would be best to use proceeds from sell of rental house to pay off all debt...and then at a later date do a construction loan to fix up our existing house.

Or can I roll proceeds into our existing house and avoid or put off capital gains?

Any advice would be appreciated...thanks.

[disneysteve]

So I'm not sure if it would be best to use proceeds from sell of rental house to pay off all debt...and then at a later date do a construction loan to fix up our existing house.

Or can I roll proceeds into our existing house and avoid or put off capital gains?

I am not a tax professional but I don't believe you can avoid capital gains by spending the proceeds on your primary residence. One has nothing to do with the other.

And yes, I would pay off your credit cards and other debt before doing elective upgrades to your home (as opposed to necessary repairs).

[Petunia 100]

To defer the gains in your rental, you would have to roll them into another rental. You cannot roll them to your primary residence.

That said, if I didn't want to be a landlord, I wouldn't let some taxable gains stop me from selling. Sell, pay your tax, use the rest to your best advantage.

[Arch_horn]

Thanks for the advice...no sooner than I posted and found similar info about rolling capital gains into another investment property.