My family is in a desperate situation and I don’t know where to go for advice but here.
Recently my mother took out a Home Equity Line of Credit of $975,000 on our primary residence worth ~$1,500,000 which was entirely paid off. She sent the money abroad for an “investment opportunity” but it turned out to be a scam. We are down $975,000 and still have to paid the loan which will be around ~9k a month. If we refinance it for 30 years we can get it down to ~4.5k a month in payments. She is incapable of working and I’m only 18 years old graduating high school.
We are planning on selling this property through a 1031 exchange to avoid captial gains taxes however, this is our primary residence so it won’t work. Can we move somewhere else and classify our house as a investment property? Should we just sell the property and just pay the hefty taxes? Are there any routes we can take?
I really need help right and there’s no better community to go to than here.
Hi @Paul Dong , I’m sorry to hear of this horrible situation and I’m sorry that a scammer took this money!
You’ll not likely be able to 1031 exchange your home, no matter what happens after you move out, since the purpose of purchasing it wasn’t Investment Property, but default to a 1031 pro here like @Dave Foster .
Remember this: when someone has a gun to your head, what do you do?
Well, ironically you have just as many options as before the gun was there, not less.
You could move to a different cost of living place, rent there, and Airbnb this home and cover the debt, otherwise you could sell it, move to a lower COLiving market, rent there, and enjoy. Otherwise you could . . . The list goes on an on, but the underlying point is this: you've got options. Thanks to the equity in your mother's home you have the ability to sell and cover the HELOC debt, so even if you never saw the scam money again (I hope that isn't the case) you've got options.
@Paul Dong , If that property has been your primary residence for at least 2 years then you can sell that and take the first $250K of gain tax free (if your mom and dad are on deed together or you are on the deed then it would be $500K)
That is profit not proceeds. So you'll probably be able to sell this property and not pay any tax. Or maybe just a little tax depending on what your profit really is. A good accountant may be able to walk you through how to account for that bad investment and get it treated as a loss probably that offsets your gain as well.
@Will Fraser Thank you so much Will! I will take your advice to heart and consider all the options we have moving forward!
@Dave Foster Will do! Thank you so much Dave! After we finish everything, how would you invest in my position?
I am thinking of multi families so the rent can offset our costs.
@Paul Dong , I would not invest in anything until you get completely through this. Get yourselves out of debt and on even footing again. And then invest for future growth not trying to recapture the past. It could be rough going for a while. But it will build.