Question re: Sale of Rental property and Capital Gains/1031 exchanges
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Question re: Sale of Rental property and Capital Gains/1031 exchanges
Posted by Motorboat on 1/22 at 9:53 am
I have a rental property valued at appx $175K. I owe appx $60K and rent it out for $1400/month. My cash flow is $900/month. I bought the property in 2000 for $115K

My tenants have recently approached me about purchasing the property they rent from me. If I sell, I will net $115K, but my gains will be $60K.

Lots of questions for the MT:

If I sell, is my net ($115K) figured into my annual earned income for purposes of determining the capital gains rate?

Am I correct that the actual gain ($60K) is all that would be subject to the CG rate?

If I avail myself to a 1031 exchange, how much time do I have to roll over the profits into another investment?

Should I even sell given the fact that I have great cash flow? i.e. What is the market for investment rental property like in BR vs finding other great tenants that can afford $1400/month.


This post was edited on 1/22 at 3:34 pm

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Posted by MoreOrLes on 1/22 at 10:22 am to Motorboat
If I'm not mistaken the gain would be on any profit after the cost basis.

So if you bought it for 115 and did capital improvements of 10K and sold it for 175K your basis would be 125K making your gain 50K.

Ofcourse don't listen to me about taxes.....I hate that shite and thats why i let my CPA rape me every year

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Posted by SippyCup on 1/22 at 6:47 pm to MoreOrLes
Don't forget to recapture depreciation.

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Posted by Motorboat on 1/23 at 7:44 am to SippyCup

recapture depreciation

What is this?

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Posted by Poodlebrain on 1/23 at 3:03 pm to Motorboat
Depreciation recapture is to prevent you from paying tax at capital gains rates on any gain attributable to the deductions for depreciation you were allowed at ordinary income rates. It does not change the amount of gain, it changes the rate of tax on a portion, or all, of the gain.

When doing a 1031 exchange you do not have to replace the propoerty on a one-for-one basis. You could find two, or more, properties to replace the one you dispose of. This should make it easier to sustain your cashflow from investments than having to find a single replacement. You should definitely seek some professional advice with respect to the 1031 exchange since the benefits of a properly executed one are enourmous, and the cost of a blown exchange permanent.

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