Possible to lower tax bill?

Question

Hi everyone, I recently sold a house and made 80k net profit. Can I defer paying taxes on the 80k if I bought an investment property with the earnings? I currently am in the process of buying 2 properties and putting down a total of 50k. I am using the proceeds from the 80k to purchase these 2 investment properties but I dont know if its possible to lower my tax bill by purchasing these.

Dave Foster · Answer

@Kenny Tran, The only way to make that work is with a 1031 exchange as @Joe Martella said.  But the 1031 must be started at the closing of the sale of your old property.  Unless you have a qualified intermediary for the 1031 in place prior to the sale you cannot later perform a 1031 exchange.

You might be able to create some accelerated or bonus depreciation on elements of your purchases that lessen your tax bill.  But that accelerated depreciation will have to be repaid unless you later do a 1031.

Julio Gonzalez · Answer

@Kenny Tran Like Dave mentioned, in order to defer the capital gains tax from the sale of the previously sold property, a 1031 exchange would've needed to be setup already. However, you can create tax savings on your new property by getting a cost segregation study to utilize accelerated depreciation and bonus depreciation. Fortunately, bonus depreciation is still at 100% in 2022. Most cost segregation companies provide a free cost benefit analysis quote to help you determine your potential tax benefit. Feel free to reach out if you have questions!

Kenny Tran · Answer

Its a ground up construction home I built with a partner that we sold. I have deductions but I was just seeing if there was other deductions I can do

Greg O'Brien · Answer

@Kenny Tran sold a rental or personal home?

Edward Kanive · Answer

If you aren’t someone maxing out 401k, 457, back door Roth, HSA, you could do that? Funds aren’t usable… but it’s avoiding taxes. If you’re in an upper end tax bracket, I would definitely be maxing those all out anyway…. But you’d definitely benefit from sheltering then.

Joe Martella · Answer

i am not a CPA, but I don't think that there is anything you can do.   There are other factors that play a role.   For example, if you owned the property for more or less than a year.  Was this your primary residence?  Then you may be able to avoid all of the taxes on the capital gains.

You would have to have setup a 1031 exchange, but then the entire profit would have had to be re-invested.  Just ensure that you capture all the expenses to include mileage on the property.

Possible to lower tax bill?

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