I don’t comment on entities. You might want to read the articles by John Hyre in the how to do it or money making forums on this CREONLINE.COM website.
If you have personal liability on the loans, I’m not sure what you would accomplish by having higher debt should there be major problems with the property.
Hving cash for future investing is a good idea. Whether that comes from selling the property or refinancing is a personal choice, it seems to me.
Posted by newbie on September 24, 2003 at 19:22:28:
Is there a time requirment to own a property before doing a 1031 exchange? If not, could one 1031 exchange profits resulting from a simultaneous closing?
Re: 1031 Time Requirment Question - Posted by Brent_IL
Posted by Brent_IL on September 24, 2003 at 19:58:11:
There is no time period of ownership requirement in the Code. There is a requirement that the relinquished property be held for investment. Can you marshal a convincing argument for the IRS that the house you owned for twenty minutes and disposed of before you left the title company was an investment property? I can’t, so I wouldn?t do a 1031 exchange under a year. According to some writers, that?s pushing it if you exchange a lot.
Re: 1031 Time Requirment Question - Posted by Nancy PA --CA
Posted by Nancy PA --CA on September 25, 2003 at 15:27:08:
I’m selling my town house in PA, then I’m planning to get a investment property in CA once I move there. My town house is owner occupant and I rented out a room for a year. Will this qualify for 1031 exchange?
thanks
Nancy
If you lived in the townhouse for 24 or more months in the past 60 months, probably there will be no federal capital gains tax on most of the sale price. That is the sale of a personal residence, whereby up to $250K per person of capital gain is tax-free.
The part that you were renting out probsbly would qualify for a 1031 exchange. You would divide up the sale of the property into the two components, your house and the income property and treat each part appropriately for tax purposes.
However, I suspect that the amount of tax you would save by doing this would not be enough to make it an appropriate post. The cost of an exchange can be virtually nothing if you set things up right. However, most people use the professional accomodators and that might cost you $600-1000. Unless you can save that much money in capital gains taxes, it is probably not worth doing an exchange.
If you want to know more about exchanging, I recommend John T. Reed’s books on taxes and on exchanging, available at his www.johntreed.com website.
Re: 1031 Time Requirment Question - Posted by Nancy PA–CA
Posted by Nancy PA–CA on September 25, 2003 at 19:38:57:
Thanks Ron!
I have only owned and lived in this house for a year, so I can’t really save the capital gain tax. I think last time, when I sold my a house( I lived in for a year) the tax rate on capital gain was around 10%. It seems like I won’t save much if I have to pay some one to do the paperwork. But I’ll definitly check out John T.Reed’s book.
If you were moving for reason of a job change, you might be able to do a pro-rata reduction of the federal capital gains on your personal residence. It all has do do with a rule about moving closer to work or someting.
It is not economically sensible to be buying a house for your own use unless you plan to stay for four years or more. Unless you are in a very high appreciation area, anyway.
You might just rent out the property wholly for a couple of years, thus converting it to a rental property. Then you could relinquish it in a tax-deferred 1031 exchange for some other investment property, perhaps closer to your new home.
Re: 1031 Time Requirment Question - Posted by Nancy PA-CA
Posted by Nancy PA-CA on September 26, 2003 at 08:07:36:
The house has appreciated by 30K in a year. This area is still expanding. I’m trying to sell it FSBO right now, if I don’t get the price I want, I’ll look for a property manager and rent it out. I just feel I don’t have control over the rental from so far away, and I don’t have a property manager that I can trust.
I need to find a new job before I sell the house to qualify for relocation tax savings. I applied some but heard nothing, I guess mainly because I am out of state.
So if I do rent the house out, would it be a good idea to form a LLC and tranfer the house under it? I have about 60% equity in the house, would it a better protection of my asset if I refinance and pull most of the equity out, then if any thing happens against the rental, my liability will be limited to what I have invested in the house? If that is not a concern, may be I’ll just use a home equity line of credit to pull cash out.