Capital Gains and Losses

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I am preparing to sell two of my duplexes to buy my first…

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Hello, I am preparing...

Hello, I am preparing to sell two of my duplexes to buy my first single family home and wanted to get an idea of what my tax consequence would be. I have outlined the properties below for your review.Holmes Duplex:
- Purchased: 10/31/2015 for $154,000
- Est. Sale Price: $325,000
- Existing Loan Bal: $148,000
- Brokerage Fee @ 6%: $19,500
- Net Gain: $151,500
Charlotte Duplex (3928 is our residence):
- Purchased: 8/12/16 for $245,000
- Est. Sale Price: $325,000
- Existing Loan Bal: $235,000
- Brokerage Fee @ 6%: $19,500
- Net Gain: $60,500Scenario 1:
We sell both properties for a cumulative net gain of $212,000 and use those proceeds to purchase our single family home. What is the tax liability for this scenario?Scenario 2:
We sell both properties for a cumulative net gain of $212,000 and 1031 exchange the proceeds into the purchase of our single family home. Since this is real estate to real estate please confirm that this would qualify as a like-kind exchange. What is the tax liability for this scenario?Scenario 3:
We sell both properties for a cumulative net gain of $212,000 and have an addendum in the sales contract allocating a higher sale price to the Charlotte property versus the Holmes property. For example we allocate $450,000 to the Charlotte property and $200,000 to the Holmes property. What is the tax liability for this scenario?Scenario 4:
I take out a $120K home equity line of credit on the Holmes property. Use the line of credit to close on the new home purchase, which my banker has approved. Then sell the properties for a combined $650,000. The total debt to be paid off at closing would be Holmes 1st mortgage ($148,000) + Holmes 2nd mortgage ($120,000) + Charlotte 1st mortgage ($235,000) = Total Debt Paid Off ($503,000); The total sales price of $650K less brokerage fee ($39,000) less debt ($503,000) = Net gain of $108,000. In this scenario I can delay the sale of the properties if it is advantageous to own the Charlotte property for 2-years. What is the tax liability for this scenario?Please let me know what you believe the tax consequence for each scenario would be so I can make the most informed decision. If you have any questions please let me know.

Accountant's Assistant: I love the idea of making big money with investments, but there are so many things that could go wrong. The Accountant will be able to help you. Is there anything else the Accountant should be aware of?

Not at this time.

Submitted: 4 months ago.Category: Capital Gains and Losses
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Answered in 8 minutes by:
3/30/2018
Tax Expert: bkb1956, Enrolled Agent/Real Estate & Corporate Paralegal replied 4 months ago
bkb1956
bkb1956, Enrolled Agent/Real Estate & Corporate Paralegal
Category: Capital Gains and Losses
Satisfied Customers: 6,671
Experience: 20+ years of experience as a tax preparer; 30+ years of experience as a real estate and corporate paralegal
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

All of your scenarios are based on incorrect information.

Paying off a mortgage is NOT part of the gain calculation.

Gain is the difference between your basis (what you paid when you purchased) plus any improvements and closing costs to buy

and

the sales price less closing costs.

If the property was a rental, there is also depreciation recapture.

As to the part of the duplex that is your primary residence, if you own and live in the home for 2 of the 5 years immediately preceding the sale, you can EXCLUDE up to $250,000 (filing single)/$500,000 if filing married filing jointly. Based on the information you provided, it might be wise to wait until after August 12, 2018 to sell.

You cannot do a 1031 exchange with the replacement property being a personal residence.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Ask Your Own Capital Gains and Losses Question
Tax Expert: bkb1956, Enrolled Agent/Real Estate & Corporate Paralegal replied 4 months ago

Just following up with you to see if you have any other questions. If so, please let me know so I can continue to assist you.

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Category: Capital Gains and Losses
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