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.
@Zachary P. , I am confused.
Can you please provide more detail? Also, can you clarify if this is your primary residence?
sorry for the confusion I accidentally deleted the part that this building is a duplex and has Been my primary residence for past few months
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. what is your goal here? Do you need cash? The answer to your questions depends on what you are trying to do short and long term.
@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?