1031 Advice Needed, Pay tax, Renovation, or Standard 1031???

[Robert Johnson]

We have rented our (formerly primary residence) out for the last 7 years.  We did not intend to sell it, but recently found a nice duplex in the path of progress (lots of potential), and have decided to sell the single family and buy the duplex and potentially use a 1031.  The problem is the duplex purchase price is approximately $50k cheaper than the single family.  

Sales price on SFR: $185k after fees (originally purchased for $157k and has a cost basis after depreciation of $135K)

Purchase price on new duplex:  $135k

Boot:  $50k

If we choose an improvement 1031 exchange, I don't think I'd be able to legitimize the $50k expenditure on the $135k duplex.  It's move in ready and would be by far the best house on the block with improvements.   

Or we could purchase an additional house and combine the two to be greater than the $135k. There are small older SFR's around town under $100k.

Or we could pay the tax (I estimate $7500) and move on...   (we are in a 15% cap gains bracket).

Local 1031 firm wants to charge $1500 to set up the exchange.

Any thoughts or advice on the above situation?

[Joshua Wright]

Actually there are plenty of DSTs that are great at $50k. It’s below a usual minimum of $100k, but most quality DST sponsors will work with you. Quality has nothing to do with the minimum, but rather the sponsor.

DSTs are simply a planning tool that could work in this situation. But of course there are plenty of other great options as well.