Selling property and 1031 exchange

[Gp G.]

Hi All,

I am thinking to sell my old  property. For example if my property sells for 300k I have to pay 6% to realtor which leaves me at 282k. Out of 282k how much taxes I have to pay right away and how much taxes I have to pay during end of tax year time. Any other closing costs or fees or charges I have to consider.  Any way I can save these costs or fees or charges. I like to sell this property 'as is' to avoid any potential issues in future. How does 1031 exchange works. How to sell this property in 1031 category and buy other property ? How many days I get to purchase other property. I never did 1031 exchange so far. Please advise

[David Krulac]

Section 1031 has many requirements, 45 day identification period, and a 180 day settlement period (including the 45 days).  The long term capital gains rate for many people is Federal 20%.  To figure your capitl gain you take your selling price minus selling costs and substract from that your purchase price + buying costs.  You can also substratc major inprovements like an addition etc minus the depreciation already taken.  You should be consulting with your CPA ot tax preparer to account for the specifics of your individual tax situation.  Its complicated and if you violate any of the IRS guidelines it will negate the 1031.  Another rule is that you can't get posession of the net proceeds which must be held by an intermediary, who is not related to you, not your attorney, not your accountant, and not a business associate of yours.

I talked about Section 1031 on Bigger Pockets Podcast #82  

[Alex Olson]

You need to talk to your accountant to see how much tax you would owe but 1031 exchange into a bigger or better (location or age) building that you like more. 1031 exchange is about getting a better life for yourself. If in state does not work for you look to the Midwest. Of course I am partial to KC. I am known around here by many as the 1031 exchange replacement finder. Hope that helps!

[Gp G.]

Thank you for your feedback. 

Can a realtor help with 1031 exchange as I never did it. I may need some hand holding to do first time without any issues

[Alex Olson]

Quote from @Gp G.:

Thank you for your feedback. 

Can a realtor help with 1031 exchange as I never did it. I may need some hand holding to do first time without any issues

With selling your property? Yes if they have experience. If you are looking for help in a different market I can help in KC. You will also need a QI. You can DM me and we can talk more.  

[Ashish Acharya]

When selling your property, you’ll pay a 6% realtor fee, leaving you with $282K from a $300K sale. Expect additional closing costs around 1-3%, roughly $3K-$9K off your total. If you’re selling for more than you bought it, you’ll owe capital gains tax, usually 15% or 20% (Plus 3.8% NIIT tax), depending on your income and possibly state taxes. 

You can use a 1031 exchange to reinvest in a new property to defer those taxes. You’ll need to identify a replacement property within 45 days and close on it within 180 days. A Qualified Intermediary (QI) is required to handle the funds and process.

Selling “as is” can save you from repair costs but might lower the sale price. Negotiate realtor fees or consider selling For Sale By Owner (FSBO) to save more. Leveraging a 1031 exchange is your best bet for deferring capital gains taxes while reinvesting in a new property.

[David Krulac]

@Gp G.undefined Most Realtors are not familar with 1031.  You need a QI Qualified Intermediary, who can also hold your funds once you settle on your relinquished property until you settle on the acquired property.

[Bill Exeter]

Good morning GP, 

If your property sells for $300,000, your "net sale price" after deducting your routine selling expenses (brokers commission, title, escrow, closing attorney, documentary transfer tax, etc.) will likely be around $275,000 (ish).  This is the magic number in a 1031 Exchange.  You need to acquire one or more replacement properties that are equal to or greater than $275,000 (ish).

The selling expenses, costs and fees are what they are.  The successful sale is all about having the right team around you.  A good realtor that knows the market where the property is located, a good tax advisor that understands real estate and 1031 Exchanges, a good closing agent, and a good Qualified Intermediary that can walk you through the 1031 Exchange process.  

[Dave Foster]

@Gp G., A 1031 exchange is not something you can can do on your own anyway.  You have to use the services of an unrelated party called the qualified intermediary.  That is their job to walk with you through the entire process including the time periods and identifying the requirements for reinvestment as well as documentation.  Your realtor can't do it because they have a relationship with you.  A realtor could in theory.  But the role of the qualified intermediary is also documentation.  And they have to hold your proceeds in between the sale and purchase.  On many of our web sites there will also be calculators to help you determine what your tax liability would be.

There are a number of folks like us right here on BP who are qualified intermediaries.  Check the references for them by going to their profile page.  And then reach out one.  A 1031 exchange costs very little as it fits into your regular closing costs. But could save you thousands in tax.

[Gp G.]

Very useful information. Any good  qualified intermediary around Atlanta Georgia area. Please advise

[Alex Olson]

@Gp G. You can use @Dave Foster for your QI. Don't need to be local.