I need to figure out what to do with a potential 300K from capital gain if I sell my rental property?

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  • #80401 Reply

      Should I invest in another rental property? What is my timeline? Do I have to invest all if it or just the capital gain amount?

      Or if I don’t tell the rental property, and I take out an equity loan for 200K to pay off another property, and have the cash flow income…but what would the cons of the equity loan?

      Thank you.

      #80402 Reply

        Do you want to be a landlord for the rest of your life? Literally to the day you die? If so, look into the 1031 exchange with a cpa. It will allow you to pass on property to future generations without anyone having to pay the tax.

        If you don’t want to be a permanent landlord, just pay the tax now. If you 1031 exchange, and then sell that future property, all the tax on the profit of both properties comes do at once. And that can push you into higher tax brackets and actually increase your total taxation.

        Either way, consult a cpa before you sell. Most people forget about depreciation recapture and that can be just as big of a tax impact as the actual capital gain.

        #80403 Reply

          Look into a 1031 exchange if you want another property. Very specific rules tho, so please contact a CPA or w firm that specializes in 1031

          #80404 Reply
          AJ Hu

            If you decide to 1031 then you must start the process once you go under contract. You must go through a 1031 intermediary to get this done. There are strict timelines you must follow to identify properties then close on it. You can invest multiple properties through a 1031.

            Depending on how active you want to be in managing your properties, there may be other alternatives to investing your capital in more passive investments. For example, if you passively invest as a limited partner in syndications, then as long as the operator completes a cost segregation study and takes accelerated depreciation, then this depreciation can help offset capital gains. It will likely not write off all capital gains but you will have some flexibility in where to invest.

            #80405 Reply

              Can you make it your primary residence or was it your primary residence in the last 5 years? If that’s the case, you can offset 250 to 500k of capital gain.

              Additionally, if you are an accredited investor, you could also offset capital gain from the profit and depreciation recapture by investing in other passive income businesses that generate paper loss thanks to accelerated depreciation, such as real estate syndications. I believe some people also call that a « lazy 1031 exchange ». Happy to share more info if you are interested.

              Disclaimer: I am not a CPA, this is not investment advise.

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