I could use some advice. I have a tenant wanting to buy the house they currently rent. For this scenario I will give basic numbers. I owe approximately 30k on the property. The tenants have offered 80k. My basis is approximately 40k. I have identified several 4 plexes that i would be interested in buying. Not knowing a thing about 1031 exchanges other than what i have read on this site and a few others, wondering if a 1031 exchange is worth it in my situation. Thanks!
You’re basically looking at tax savings doing this. Based on a quick look at your numbers, if sold at 80K, a basis of 30K, the cap gains would be 50K, with a Federal cap gains rate of 15%, or $7,500. There may be state and local taxes added in, if any.
The problem I found is finding qualified professionals helping you through this. Most local attorneys do simple plain vanilla closings. If you talk to QI’s (qualified intermediaries), one of the services they offer is phone consultations during closing besides help in preparing paperwork for the attorney. This is besides holding funds for you in cases of non-simultaneous exchanges.
I spoke to local attorneys about handling exchanges, and the first thing out of their mouths is they don’t do it, or they never tried one. But if I tell them I can get a QI on call to help them, they’re a little less nervous.
In your case, you’ll be doing a simultaneous 3 way exchange, technically can be done without a QI, presumably with your tenant’s cooperation. I haven’t looked into it lately, so you’ll have to call around to find out how much it’ll cost if only to give closing advice.
You’ll also need a title company familiar with this.
But then, if the tax savings is not a big factor, I would probably skip the 1031. Figure how much more would your new mortgage be without all this hassle, like the interest on $7,500. Like they say in the TV commercials, comes to pennies a day.
Great Info.Thanks for sharing.