I'm selling a property I bought in Salt Lake City. It was the first property I bought there and I made a few mistakes on it. Not only didn't it have front landscaping, it had rubble in the front yard and subsequently had 3 foot weeds growing there.
Also had a run of bad luck with tenants. They kept moving out!
Finally I got bored and one of the cousins of my ex-tenants got his friend to put an offer on the house. I think the house is worth $260,000 less $9k for landscaping or $251k. He put an offer for $242.5k which is more than I'd fetch if I would have listed it with a broker so I took it. Considering I bought it for $210k, that a nice 32.5k profit less around 3-4k in vancancies, or roughly around 28k. Plus I get my 10% downpayment back.
Its a good time to be getting a check for around 50k!!! I have several oil deals I want to invest it in.
Now my problem is whether I want to do a 1031 exchange on this property. If I do, I don't pay tax on the proceeds, but I also tie up my 21k downpayment for a long time.
In a 1031 exchange you DO NOT get to pull your downpayment out of the deal. Plus I may not be able to invest in the oil deals - it has to go into real estate deals, which most of the oil deals will not [although oil deal sometimes can qualify as real estate deals and be eligible for 1031 exchanges. The downside is they're more expensive to get into and that eliminates any advantage of not paying taxes].
Since I have several properties at this point, I have roughly 45k in depreciation losses. Since my maximum passive loss is capped at 25k, I have 20 to offset against passive profits or the 28k I'll be making off this deal! That way I get my 21k back and I pay taxes on the remaing 8k, or roughly $1,200! I can live with that. Plus I'm still carrying over 15-20k of losses from the stock market crash of 2000! So I probably won't end up paying any tax on the profit.
And the sweet thing is the investor actually took over the lease-option agreement of the previous tenant and is paying rent until the loan closes! Of course I charged him a $2k assignment fee which helps mitigate my vacancies.
Opting for a 1031 exchange is better than selling your property if you’re planning to build a business. Being able to defer taxes and reinvest in something that has a similar value to your property or business is too good to pass. Anyway, thanks for sharing your story!
ReplyDeleteAudrey Sizemore