1031 exchange or not?

Question

I have a closing on 1 Sep where I will net $10k, then another closing for a property that I am purchasing for $45k on 16 Sept. My question, is it worth the effort and expense to do a 1031 for the $10k from the first sale to use for the second sale? With it only being $10k, I'm not sure if it's worth the effort.

Thanks, Cajun

Bill B. · Answer

Have you owned the property at least a year? Flips don’t qualify.

If you have, As dave said, what you net has nothing to do with what you owe in taxes. Take your net sales price after closing costs and subtract your original purchase price and that’s roughly your taxable gain. Plus the 25% depreciation recapture taX (about 1% of the building value per year owned.)

Dave Foster · Answer

@Philip Joseph, the cash you generate is not an indicator of your tax burden.  The taxable gain is calculated as the difference between your net sales price and your adjusted cost basis (original purchase +capital improvements - depreciation).

Depending on these factors you could actually have a much larger (or smaller) tax from the sale.  If you've held that property for a while and maybe have refinanced it I can just about guarantee that your taxable gain is more than $10,000.  So figure that out first.

Here's an article on typical costs for a 1013.  These two numbers will tell you whether or not it's worth it.

Joseph Medina · Answer

I would figure out how much the intermediary will charge you vs how much the taxes will be. Taxes on 10k at a cap gain tax is like 2100$ not including any state income taxes. But you might want to talk to a CPA