BiggerPockets

Hey there,

I was wondering at what point a 1031 makes sense? I have a property which is the first I've held over a year. Someone told me to consider a 1031, but is it worth it if the profits are only 40K?

Or selling costs, improvements?

"Uncle Sam will get you later". Unless you successfully kick the tax can down the road until you kick the bucket and your estate deals with it at the stepped up basis.

Misia,

We here at NES Financial, think it is definitely a strategy you should look into. By deferring your capital gains tax, you increase your purchasing power.

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Since you've held the property for more than one year, you would only be subject to long term capital gains, which would be your current tax bracket.

Depending on what you were going to do with that $40K, a 1031 may or may not be beneficial to you.

If you were going to buy more real estate, then yes a 1031 is probably going to be in your best interest, since you would be deferring taxes on your profit.

If you found what you thought was a better investment than real estate, then a 1031 is of no use to you at this time.

The long term capital gains tax rate (thru the end of 2012) is not your tax bracket, but either 0% or 15% depending upon your tax bracket. Unrecaptured depreciation is taxed at 25%

Your assessment is basically correct. However, a property you purchase to flip is not eligible to partipate in a 1031 exchange. The replacement property in a 1031 exchange must be held for investment use, or for use in your business.

Flip property does not meet the "qualified use" requirement.

Instead, look at the tax impact of a sale. Will the net profit on the sale be "earned" in the 15% tax bracket? If so, then the capital gains tax due to appreciation is zero.

Do you have suspended loss carryovers that effectively nullify the capital gain. If so, then a 1031 might not make sense.

As Bill Exeter already said, the reason to do an exchange is to put the money you would have paid to the IRS to work for you instead. For me, the breakeven point is when the cost of the exchange is equal to or greater than the amount of taxes I would save by doing an exchange.

I have my personal property that I bought a year ago for 75k, I put about 12k into it and have the chance to sell it for 120k. Can I do a 1031 tax exchange on my own residence? Im selling because im relocating to florida and want to buy a home down there soon. Im just not sure if you are allowed to do it on your primary residence. I want to take away as much money at closing as possible. Any help would be appreciated. Thanks

I just want to keep the most now at closing. Is it possible to not pay any capital gains on my scenario?

While you do not qualify for a 1031 exchange, you might qualify for a gain exclusion.

You must have owned in the home at least 2 years. (Ownership test)

You also must have lived in the home at least 2 years in the last 5 years. (Use test)