San Francisco condo conversion tax implications

7 Replies

I bought the building for 1.1 million and hoping to sell the smaller unit for around 700k. If I do what are the tax implications of this?

Since it is less than the total cost of the building will the proceeds not be taxed? 

If it will be taxed can I just do 1031 exchange and buy a property of 700k to avoid capital gains?

Can I just pay off the mortgage to avoid taxes?

Thank you for your help. 

Happy to answer any questions anyone has about tenant buyouts and San Francisco condo conversion.

If you sell a portion of the bldg ya gotta pay taxes on the gain. Or 1031 it and defer. or rent it out, which is what I’d do...and build your equity. 

@Zachary P. If you've rented it out the smaller unit/used it as an investment property and used the larger unit as your personal residence, I believe you can exchange the smaller unit, but the % you can exchange will be a bit nuanced. 

If you just want to sell the unit without exchanging, you must pay taxes on the sale. As you probably know by living in SF, condo-converting definitely adds a 5%-7% bump on the value of the unit vs. selling it as a duplex or a TIC.

Look into the Section 121 exclusion as well, but it seems that it may only apply on your owner-occupied larger unit. Either way, I would talk to your accountant/tax specialist and also to 1031 specialist such as Greg Rocca of Pacific Realty Exchange, who is one most well-known 1031 experts in San Francisco. 

@Zachary P. , Please help us help you by answering these?

Its a duplex, but you said smaller unit. Was this your unit or it was rented or vacant?