1031 or not!

[Zachary Rosa]

Hi,

I am planning on a potential 1031 (very early stages) and would like to see what the reinvestment goal would be to maximize the befits of the 1031.

property I would like to exchange 

purchase price $515,000

sell price est: $725,000

current principle balance: $350,700

Interest rate 3.25

Current Mortage is $2300 and it rents for $4000. This was the first property I ever purchased so I have a lot of equity and I feel like it could be better used.

[Dave Foster]

@Zachary Rosa. 

To see how much a 1031 exchange will benefit you in a sale you must first calculate the performance of your current property. I really starts with the "why" of selling. Compare that to the performance of a new property (with that equity unlocked but also with a different interest rate as @Katie Ripp said). Why do you want to sell?

The 1031 exchange will indefinitely defer all tax on profit and all depreciation recapture. Here's the key components to calculate your tax liability

Adjusted cost basis - Is the purchase price, plus capital improvements, minus depreciation.

Net Sale - Is the contract price, minus the closing costs and commissions.

adjust cost basis - net sale = net gain

Your gain is made up of profit and depreciation recapture. And you can use that to calculate your tax hit.

In order to defer all tax you must purchase at least as much investment real estate as your net sale using all of your net proceeds.

Net proceeds - Is the amount of cash that goes into your exchange account.