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!

@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.

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

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.

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