Hello All, firstly I would like to thank you for reading this and for any suggestions you may have...I am very close to selling my property in the Hudson Valley and I am very confused about what I should do afterward. I bought a two family brick property in Hudson NY in 2014 for 250 K (all cash deal) and I might be selling it soon for 600K, sounds good right? Not really because I found out that, after the real estate agency's 5% fee (30K), I will have to pay around 30% in capital gain taxes which comes up to a whopping 96K. This is to say that my 4 year investment yielded net 224K, approx. 56k per year...I did a lot of improvement works on the house: new floors on two of the three floors, tore down a wall down, completely rehabbed the basement, added a bathroom, put in a new kitchen, replaced some appliances and many other cosmetic jobs which were costly but I did myself with the help of my father and the occasional local handyman. Of course I kept all the material receipts and paid my father and the handymen but I did not hire a contractor so I do not have proper invoices but only receipts...I probably spent around 60 to 80k for the rehab but even if I could fully deduct the expenses the capital gain would be still very stiff...A friend suggested I should reinvest right away and do a 1013 exchange to defer capital gains and another friend mentioned to reinvest through RealWealth Network. My questions are:
ABOUT 1013 exchange : I understand that I have to exchange a two family for a two family, but if I buy a two family and make one of the apartments my primary residence, will I still have to pay capital gain taxes if I sell in let's say in 5 years?
Once the sale will have gone through and after I will have paid the real estate fee, I will have roughly 570K to reinvest.
I understand that I have to identify one or more properties to swap with a total value of the sale of my property: are we talking about the gross yield (600K) or the net yield (570 after after the real estate fee)?
If I buy let's say 2 two family properties for 200k each I will have 70k left. If I can't find a two family for 70k could I buy land?
If I cannot buy land and I am left with the 70k, I will have to pay what they call the boot, am I correct in thinking that I will have to pay (let's say capital gain is 30%) capital gains on the 70k?
Could I sell 1 of the two two families in the future and pay capital gains on it or the 1013 exchange requires to sell both properties at once?
Could anybody please explain to my these 1013 rules below with examples in numbers keeping in mind that my numbers are:
purchased for 250 all cash deal
sold for 600 - 30k for real estate agent = 570K
Types of Replacement Properties to Identify:
- Three properties without regard to their fair market value.
- Any number of properties as long as their aggregate fair market value at the end of the identification period does not exceed 200% of the aggregate fair market value of the relinquished property as of the transfer date.
- If the three-property rule and the 200% rule is exceeded, the exchange will not fail if the taxpayer purchases 95% of the aggregate fair market value of all identified properties.
I do not understand exactly what "aggregate fair market value" means and especially the third point is a mystery...
if you made it so far ;) and understood I misinterpreted the BOOT, could you please explain it to me with a clear explain in numbers?
Again, thank you so much for reading this and apologies for the length of the post...
