reinvestment goal for 1031 exhange

[Zachary Rosa]

Hi,

I am looking to do a 1031 exchange and am wondering what is the amount of the house I would have to buy to hit my reinvestment goal for the 1031 exchange.

the current property: 

purchase price $515,000

sell price :$660,000

principle balance: $383,700

[Dave Foster]

@Zachary Rosa, In order to defer all tax you must do two things.  First you must purchase at least as your net sale.  Second you must use all of the net proceeds from your sale in the purchase or purchases.

Your net sale will be the sales price of $660K minus any closing costs or commissions.  If it's a normal sale you'll end up with a net sale of around $630K. 

Your net proceeds will be the net sale minus the mortgage pay off.  So, $630K minus $384 = $246.

Your reinvestment target to defer all tax would be to purchase at least $630K of real estate using $246 of cash.

You can purchase less than your sale.  And you can take cash out.  But when you do the IRS considers that taking profit.  So you pay tax on the difference.  But shelter any remaining profit that is left.