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I have a 4 unit rental property that I bought in 1990 for…

I have a 4...

I have a 4 unit rental property that I bought in 1990 for $425,000. I refinanced the mortgage in 2005 and used the equity to purchase a house. I also refinanced in 2011 to pay off some personal debt. End result, I still have a balance of $500,000 on the property. I am considering selling the property and have consulted a broker who said I can probably get $950K. I want to reinvest the capital gains into a single family home I can own free and clear. My question is how much do I need to invest to avoid paying capital gains.

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

Over the years I have depreciated the property for improvements but not on the building itself.

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3/9/2018
Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,180
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
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Customer reply replied 1 month ago
Ok

Your option is to defer capital gains.

A properly executed 1031 exchange allows you to defer capital gains from the sale of business property.

The single family home will have to be a "like-kind" property, in your case an investment property,

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To accomplish a Section 1031 exchange, there must be an exchange of properties. Both the relinquished property you sell and the replacement property you buy must meet certain requirements.

Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class. Quality or grade does not matter.

The first limit is that you have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary.

Please let me know if this has answered your question or if you have any additional questions.

When you have no further questions a positive rating of 5 stars is much appreciated.

Thank you!

Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,180
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
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Customer reply replied 1 month ago
I understand the requirement of finding like property. My concern is the actual amount I have to pay for the exchanged property. I sell my rental for $950K, I pay off the outstanding loan of $500K leaving me with $450K. What is the amount subject to capital gains in my scenario? and secondly, does this mean if the amount is greater than what I receive I would have to put up new money to buy the second property so I do not owe capital gains?

You have to determine your cost basis. The cost basis doesn't necessarily include your refinancing unless the funds were used to improve the party. --The cost basis is your purchase price plus improvements

Give me a moment to look over your numbers

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