Should we sell or rent after property is rehabbed?

Question

Purchased a house with HELOC for $192k. Rented it for 6 mos now we are in the middle of the rehab.  Once the rehabbed we can rent it for $1950.  Keep for 2 years and then sell using 1031 exchange to avoid Capital Gains.  Or we can sell it now for about $350k and pay the higher taxes. If I am understanding correctly if we sell it now profits would probably be considered ordinary income but we could directly deduct all the rehabbing.  If we sell later taxes are lower but a lot of the improvements would have to be depreciated and paid back once sold. We are looking at about $130k gain.  Any thoughts/suggestions are appreciated.  Thanks!

Theresa Harris · Answer

@Grace P.  Determine how much are the monthly expenses compared to the rent.  Using the 2 year plan, figure out how much you'd walk away with if you sold it now vs rented it for 2 years.  Don't forget to include equity in the home and, as you mentioned, the taxes.

Grace P. · Answer

Yes you are correct Sharon!  Thank you!!!  Looks like we could do a 1031 exchange now.  We might just do that.

Sharon Rosendahl · Answer

Isn't 1+ years considered a long term capital gain which is usually a lower tax rate than short term capital gain? Maybe that is the happy medium between full taxes and 1031 no taxes.

Grace P. · Answer

Thanks Theresa Harris!  We'd profit some money but it might not be worth it considering the wear and tear the tenants may cause.