Proceeds vs Profit on a 1031 Sale

[Jimmy Lin]

Reading some 1031 articles on BP and it is a little confusing that the term proceeds and profits are being used interchangeably. 

From: https://www.biggerpockets.com/...

"Also, all the proceeds from the sale need to be reinvested. So, if I made $100K, all of that needs to be moved over. Or say I made $200K, the new property could be $201K or even $1 million. The point is the new property has to get purchased for more than the price of the old, and I have to roll all the profits over to a new property held in the same entity."

From my understanding, proceeds and profits are two different things.  Lets use this example:  Purchase price of investment property is 100k, with 80k in outstanding mortgage.  Property is sold at 150k to be 1031X'd.  In this example, the sales proceeds is 70k (150k - 80k), while the profit is 50k (150k - 100k).  Which amount will need to be reinvested in the new deal? 

[Dave Foster]

@Jimmy Lin, $9K is real money to anyone!!  in 08 I had a bunch of clients who were so far under water on their real estate they needed garden hoses to breath.  Guess what - None of them who didn't have to sell lost a penny.  They simply held their properties (making money the entire time) and in the last couple of years have been able to sell at a nice profit and 1031 again.  Dips come and go.  I' became an advocate of buying right so you can hold on.  And not worrying about what you paid for a property.  

9K out of your pocket today versus keeping that and having to wait through a couple of years of positive cash flow to free it up isn't a tough decision for me.  But everyone has a different comfort level.  For many, taxes are just a cost of business.  Those folks don't do 1031s.  But if that's the case then they probably don't do 401ks either.  Because that is the same principle.

Personally I feel like anyone selling right now is in a great position.  Because you can take todays gain and invest in property that is softening.  This is a shoulder season.  People are selling still relatively high.  and able to buy slightly lower - That's perfect 1031 land.