Disposing 1031 Exchange Property Question
Hello, I am trying to get an idea for the tax consequences I would face by selling a property that I acquired via 1031 exchange. Here is the background:
*I purchased Property A on Feb 2016 for $109K with cash, rented out, Sold 2 years later (Apr 2018) for $141K after closing costs. So my long-term capital gain was about $32K. I depreciated about $7K from the property over the 2 years.
*Proceeds after paying off a HELOC were $65K.
*I decided to do a 1031 exchange, and needed to fully invest the $65K, so I acquired 2 duplexes and split the $65K proceeds evenly for down payments between the 2 duplexes. Duplex B was purchased for $170K and Duplex C was purchased for $157,500 (About $165K all-in after closing costs). I closed on both properties in May 2018.
*I have received a strong off-market offer to buy Duplex C for $189K, where I may net about $185K after closing costs. I really don't like Duplex C very much, and okay with selling it as long as I don't have a big tax loss/overall loss due to the 1031 exchange. Plan would be sell early Jan 2019.
So my question is, about how much would I owe in taxes if I were to sell Duplex C?
I'm hoping that my tax due to IRS will be about 50% lower than if I were to have not split the proceeds evenly between 2 properties. So, I had a $32K capital gain from Property A, along with about $7K in depreciation recapture, so if about 50% of it is owed back to IRS, it would look like this:
- Long-Term Capital Gains: $32K/2 = $16K long term capital gains at 15% = $1,600 due to IRS.
- Depreciation Recapture: $7K/2 = $3,500 at about 25% = $875 due to IRS.
--- Total due to IRS will be about $2,500. This would definitely make it worthwhile to sell, because I was all-in for Duplex C for $165K, can perhaps sell for $185K after closing costs, and that would put me at $20K profit (which will be taxed, short-term ordinary income bracket). I then only owe about $2,500 in back taxes from 1031 exchange. Overall I would have a profit, correct?
If I am in the ballpark in my calculations here, it sounds like it would make a lot of sense for me to sell