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Selling Investment Rental Property: Tax avoidance options and 1031

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  • Selling Investment Rental Property: Tax avoidance options and 1031

    We are contemplating selling one of our investment rental properties in a profitable market, and intend to encash all money.

    We had below queries:
    Sell Price = Initial Principal Downpayment + Loan + Closing Cost + Taxes - Depreciation + Capital Gains

    1. Are Taxes based ONLY on Capital Gains or (Principal Downpayment + Capital Gains)?

    2. 1031 Like-Kind Exchange:
    - Is it possible if we cash-out Initial Principal Money AND use Only Capital-Gains, as part of 1031 like-kind exchange, to purchase new investment property.

    3. Can Capital Gains be used to pay mortgage debt for my another CURRENT investment-property as part of 1031 like-kind exchange?
    -And, cash-out Initial Principal money.

    Thank you in advance.

  • #2
    Your income tax is calculated on your net profit (gross profit minus cost basis of the asset)
    On a 1031 exchange, you are required to invest all proceeds from the relinquished property into a new like-kind replacement property (does not have to be a rental property as long as it meets the like-kind requirement). The price must be equal to or higher than the relinquished property and the exchange must be effected (closed) within 180 days.
    Check with a reputable 1031 Exchangor to ensure you meet all required - sometimes complex - steps.

    Alexander Burnett
    IG - LinkedIn - FB


    • #3
      Thanks for prompt suggestion.


      • #4
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