1031 versus Capitals Gains

3 Replies

I recently retired and I am unable to do maintenance work on my 3 family home. I purchased it in 1985 and have been living in 1 apt as my primary home and renting out the other 2 apts. when I purchased it I paid 15,000.00 dollars and have to do over all 3 apts for a cost of 150,000.00 over all these years. I have been taking the depression for it over the 34 years. Now that I'm unable to maintain it I'm thinking of selling an buying 2 condos north and south 1 primarily for living and one for 2nd home  

I know 2/3 is going to be capital gains and some getting to be written off for work done, what would be my best route to attack my problem 

Bite the bullet and pay the capital gains / really don’t want to go 1031 because I think I’ll be back in the same position 

34 years of depreciation? 

Depreciation on this property should have been over 27.5 years- I'm guessing maybe depreciation renovations and such done later on still

If you sell you're correct 1/3 will qualify for the 121 primary exclusion- the rest will be subject to capital gains and the recapture on the depreciation. 

Without knowing overall numbers there's no way to say about how much gains will be, whether a 1031 makes sense ect. 

If you qualify as an accredited investor you could potentially do a 1031 into a DST which is a totally passive investor.

@Peter Pitrone , 1/3rd of that property sale will be tax free.  I'd use that portion to buy a new primary residence condo (up north).  Then you could sell and do a 1031 exchange the other 2/3rds (or however the allocations worked) and purchase a vacation rental condo down south that you use some for vacation and generate some rent as well.  

There are any number of types and models for this ranging from condos that you self manage all the way to condotels that are totally central managed and even give you the option of use of other units if yours is booked when you want to come down.

In any case, the key is that you will get to defer all tax and depreciation recapture in that 1031 exchange.  And that could be a game changer for you.

@Peter Pitrone I don't think you'll be back to the same position if you choose to do a 1031 exchange. As far as I can see, the increasing management liability is your concern. To get rid of management responsibilities, you can invest in NNN properties. However, you need to know a few things first. Since you're using 1 apt for living, you can't 1031 exchange it. Personal properties don't qualify for a 1031 exchange. For the other two, you can do a 1031 exchange as they are given on a lease. You can reinvest the proceeds from these two apartments into one or more NNN properties and enjoy management-free income.

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