Loan Options? Want to 1031 rental>rental but 6m into new business

6 Replies

Hello all,

I'm wondering whether my situation is outside of the realm of financing possibilities, even creative ones.....

My wife has had a small rental in NJ for 10+ years. She has refinanced so we are looking at a tax hit on a small profit. I'd like to 1031 into a rental closer to us in Oregon but am also 6m into starting my own business so do not have W2 earnings or 2y worth of P&L for a new mortgage. Last 2y taxes are solid. (AGI ~mid $100's), this year projected lower as business ramps up. My wife works but her income alone would likely not qualify (<$50k). Our credit is very good. Also, not sure if applicable but we have a rental in SC that is rented but has a HELOC on it for some renovations so DTI is high now.

Numbers:  NJ home sale price = $156,000  - Profit = $45,000 - Projected tax = $25k+  

Any thoughts?   Pretty sure I'm SOL on this due to the new business but would love to hear there's an option.

Thanks all,

G

Originally posted by @Gerich Fellermann :

Hello all,

I'm wondering whether my situation is outside of the realm of financing possibilities, even creative ones.....

My wife has had a small rental in NJ for 10+ years. She has refinanced so we are looking at a tax hit on a small profit. I'd like to 1031 into a rental closer to us in Oregon but am also 6m into starting my own business so do not have W2 earnings or 2y worth of P&L for a new mortgage. Last 2y taxes are solid. (AGI ~mid $100's), this year projected lower as business ramps up. My wife works but her income alone would likely not qualify (<$50k). Our credit is very good. Also, not sure if applicable but we have a rental in SC that is rented but has a HELOC on it for some renovations so DTI is high now.

Numbers:  NJ home sale price = $156,000  - Profit = $45,000 - Projected tax = $25k+  

Any thoughts?   Pretty sure I'm SOL on this due to the new business but would love to hear there's an option.

Thanks all,

G


You said there was refinance so there 

You said there was a refinance so there will be a tax hit. That is not how it works. Refi has nothing to do with taxes or basis that will affect taxes in a case like yours.

On other issues, I will let lenders chime in. 

@Gerich Fellermann , I fear your tax situation might be worse than you think.  You can ball park your gain by starting with the purchase price + capital improvements - depreciation.  This equals your adjusted cost basis.  Subtract this amount from the net sale ($156K ish) and that is your true gain.  It will be made up of two parts - Capital gain which will probably be 15% plus state.  And depreciation recapture which will be taxed at 25%.  And after 10 years of owning that property that will be a significant amount of depreciation recap.

So finding a lender - even a Private money lender and paying above market for a year and a half til you can refinance might be worth it to avoid what might be a significant tax.

Thanks (kinda!) @Dave Foster .  I have read Ankit Duggal's article (https://www.biggerpockets.com/blog/2012-12-31-private-money-lenders) but outside of those avenues, are there any golden tips to finding a PML?

Alternatively, and again I believe I know the answer here, but is there any kind of grey area within the 1031 parameters that would allow for REIT type fund options to defer tax?

G

@Gerich Fellermann

It's hard to do tax planning without looking at your return but I'll throw this out there:

  • Income taxes are lower than they have been in decades.
  • We're likely to be in a higher tax situation sometime in the future
  • Your income is lower than usual since you're starting a new business

Maybe paying the tax now at a relatively low marginal rate is actually the smart tax plan?

Again, it's hard to do any real tax planning without seeing your tax return or knowing your situation.

@Gerich Fellermann There's pmls under every rock. Whether they're experienced or for real, or good only references from satisfied customers will tell. You can talk to self directed IRA custodians, local REIAs or real estate meet up groups, Even ask the realtor in the market you are looking to 1031 into. I sent you a pm as well.