Set Aside for Taxes?

[Dan Shoemaker]

Gang,

I have a rental property I am planning to sell. I'm expecting to clear between $38k and $45k. I have owned it for over two years. What percentage should I be setting aside for tax purposes?

[Bill Exeter]

Dan Shoemaker If you want to defer all of your taxes (capital gain, depreciation recapture and potentially the new Medicare Surcharge tax), you must acquire one or more properties that are equal to or greater in value than what you sold AND you must reinvest all of your cash proceeds/equity from the sale transaction.

You MUST have a Qualified Intermediary in place BEFORE you close on the sale transaction . The QI will prepare the legal documents to properly structure your 1031 Exchange and hold your net proceeds/equity received during the 1031 Exchange.

Your 1031 Exchange funds can be used toward rehab costs as long as they are capital improvements. This is referred to as a Build-To-Suit (Improvement) 1031 Exchange. These are more complicated and expensive as the Qualified Intermediary must acquire and hold legal title to your replacement property and the rehab costs must be paid for and completed during your 180 calendar day exchange period.