$1000 cash flow per month SD should I keep

[Brad Penley]

I have a duplex in a very popular place in San Diego, CA. I make $1000 over the mortgage and cash flow $800. I’m getting stationed in Florida and would lose a significant amount of cash flow if I had both properties being managed professionally. Purchase price was $726,000, I put $65,000 down, with 3.25% for 30 year mortgage. Current principle is $663,000. I could sell and make approx $200,000 and pay no capital gains tax since I lived in one of the units as my primary residence for 3 years. Or I could hold and keep cash flowing but at a much lower return and then hold the property for another 10/15 years then sell but have to 1031 exchange or pay a huge cap gains. Any suggestions on sell now or hold long term?

[Dave Foster]

@Brad Penley, All other considerations like appreciation etc aside, you have a unique moment in time to both put cash in your pocket tax free and complete a 1031 exchange.  

First of all if you simply sell you will not get the entire profit tax free since only 50% of the property was your primary residence.  You will only get 50% of the profit tax free.  So if you just sell you'll get some tax free but you'll also have to pay tax on the rest - unless you also 1031.

And in this instance you could absolutely combine a 1031 and a primary residence sale.  You would get the amount allocated to your primary residence tax free and would 1031 the amount allocated to the investment portion.  This way you have no tax bill at all.  Some is tax free and some is tax deferred.

The other issue here is that with the investment allocation being $350K ish it would not be nearly as difficult for you to replace that in a 1031 near you in FL.  Depending on where you are there are plenty of good opportunities to replace that kind of cash flow.