All Forum Posts by: Jayna Wade

Although its tough to advise on this specifically, I would just say.....I find too many people fixated on not paying the Cap Gains Tax. Regardless of how much profit they are taking. Sometimes it's just better to pay the dang taxes and move on.

For instance, I have a good friend who is going to sell his house for $800k after buying for $650k 18 mos ago. Taxes are about $40k and he's stressing about how to avoid paying. My advice was to just pay the $40k and walk away with $110k.

Not a bad return for 18 mos of doing nothing right?

This is true. Just "losing" 30K because I can't make a decision feels stupid.

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Quote from @Bill B.:

I hate when the response is “not enough information provided…”. But in this case, that’s the fact. Let me show you why and incorrect assumptions you made…

First: You’re selling for $226k. That minus selling costs (commissions xfer fees, and such.) let’s say $210k, is how much you’re next 1031 would have to be for to avoid all taxes, not the $130k in “cash” you received

Second: your selling price, minus selling costs, minus purchase price is the amount of taxable gain you have (plus depreciation, we’ll get to later.) how much is that? Let’s pretend you paid $160k, so you have $50k gain Nice. EXCEPT, as you mentioned, if you keep that $30k in “cash” from the sale for something else, it’s taxable, anyway. So doing a 1031 will only reduce your tax bill from $7,500 to $4,500. (You’re only deferring the 15% capital gains tax on the $20k you leave in the deal.)

Third: assuming you paid the $160k, and $30k of that was land value. You depreciated $130k/27.5 = $4,727 per year. And without a 1031 you’ll owe 25% recapture on that, so about $1,200 per year owned

So if my numbers are even slow to accurate guesses I would never do a 1031 to avoid $3,000 in capital gains taxes, so you’d have 10-20 years of depreciation to make it worth considering

Reply with actual numbers if you need help figuring it out from here just @ me so I know you did

Purchase cost, year purchased, and net received after closing (make sure you never have control of the money and your 1031 QI is already in place or you’re not doing one.)

Thanks. I actually did run a whole tax analysis on it, including capital gains and depreciation recapture. It came out to 30K in taxes based on our personal tax status, what I paid for it and how much I depreciated it over the time I held it. I had the property for over 12 years and it has appreciated to double what I paid for it. So the numbers do come out as net $130k after the sale with realtor fees and paying off what's left of the mortgage. And about 30K in taxes if I don't do the 1031.

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I'm sorry this is long, but I have somewhat of a unique situation and could really use some advice. We are currently in the process of selling our long term rental and will close mid June. The sale price is $226k and we will have about $130k after the sale. We are planning on holding about 30k for a down payment for our own home and will have to pay taxes on that. We're trying to figure out what we should do with the remaining$100k. Originally we were planning on doing a 1031 exchange to save on taxes and using that money to purchase an STR in a mountain market like Shenandoah or Maggie Valley, but now with market conditions we're not so sure. But also, we're military and my husband is going on a 1 year unaccompanied tour, so we also have the option of moving home , Tampa Bay area, purchasing a property and living in it for a year and converting that property to an STR. So, these are our options I can think of, but I'm really not sure what to do.

1) stick with the original plan, do a 1031 exchange and purchase an STR with the $100k, but that would require a loan with 20-25% down

2) do a smaller 80k 1031 with 25% down, then use the remaining 20k on a 3.5% down 203k loan to on a property in Tampa area, but we would have to pay additional taxes and both budgets would be really small. Also not sure the market in Tampa Bay would be a good investment.

3) Don't use a 1031 exchange at all, pay taxes on the full capital gains and depreciation which would be about 30k. After holding 25k for our own home we would have 75k that we could use however we want, including using a 10% down second home loan for an STR and/or 3.5-5% down 203K or VA loan for a property in Tampa Bay.

4) Don't use a 1031, pay the taxes and then throw the entire 100k leftover into an HSA until the market gets better or it's time for us to buy our own home

What would you do? Any advice would be so greatly appreciated.

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All Forum Posts by: Jayna Wade

Jayna Wade has started 1 posts and replied 3 times.

Post: 1031 to STR or just pay the taxes?

Post: 1031 to STR or just pay the taxes?

Post: 1031 to STR or just pay the taxes?