1031 Questions, with numbers

3 Replies

Hi everyone! 

I've been reading through the 1031 exchange forum and I'm still a little confused as to how the actual numbers will work out.  I was hoping to give the actual numbers I'm working with to better understand this.

I have a property that I will be selling and just based on estimates I think it would sell for 510k.  The current loan is 328k.  After all fees etc etc, my agent gave me a sheet which shows me net profit would be 150k.

Is that 510k the most important number in a 1031 exchange?  If I found a property, or two, for a total of 500k would I likely be looking at paying taxes on 10k?

If I were trying to avoid financing roughly 25% of this new purchase, how do the numbers work if I bought a 400k property?  300k?

Thank you!

@Josiah Collins

You should be thinking of sales price and buying up from where you are selling.

Capital gains has nothing to do with the mortgage...

@Josiah Collins , The two numbers you want to pay close attention  to are the net sales price (contract minus closing costs) and net proceeds (the net sales price minus mortgage pay off).  

As long as you purchase at least as much as your net sale and use all of the net proceeds in the purchase or purchases then you will defer all tax.

You can purchase less than what you sell and you can take cash out.  But when you do that the IRS says that you are taking profit.  So you would pay tax on that difference but shelter the rest in the 1031.

In your case It looks like your contract price is 510 an there are will be 32K of closing costs.  So your net sale is $478K.  You're mortgage of $328K is paid off and you have net proceeds of $150K that go into your exchange acct.  

Now you know that your reinvestment target to avoid all tax is $478K and you need to use all $150K to do so. And yes you can absolutely buy more than one to get to that amount.

If you bought for $400K you would by buying $78K less than what you sold so you would pay tax on the $78 but shelter the rest of your gain, if any, in the exchange.

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