6-family in Connecticut to property near CA

[Stanley Furman]

We've owned a 6-family for over 37 years.  Owner manager. Both grown kids in CA. Looking to trade for either a single family rental or multi-family with stability out west.

      The location of the 6-family is in a blue collar town, but for the last 3 years I've managed it remotely and successfully.  I'm TIRED of the hassles, but despise paying over $150K of hard earned money in taxes.  I've considered Utah (growing), Portland and will consider others.

       I'm very handy and can fix anything, but my body is a dyslexic 37. A small rental would give me a sense of purpose, allow me to use my skills and also to travel the west.
     Ideas would be welcomed.

Thanks

Stan F.

[Dave Foster]

@Stanley Furman,  Love the dyslexia!  I was in Stamford for a few years and that is a tough market in some of those towns.  I understand the effort you've put in over the years.  Couple of things for you to consider.

If you're thinking to move as well you'll want to take a look at state taxation. It's very easy to jump your ROI significantly simply by relocating yourself and your property to a tax advantaged state. For purposes of being close to grand kids Nevada and Washington come to mind. But the two biggest are TX and FL along with WY and SD. TN and New Hampshire would also make the list.

Since you've owned that property for so long you've exhausted the depreciation allowance and your basis is probably close to zero.  That means a chunk of capital gains tax when you sell.  So you'll want to do a 1031 exchange to avoid all of that capital gains tax and depreciation recapture.  The 1031 defers the tax indefinitely.  But as long as you own your new property or as long as any time you sell it you do another 1031 you'll continue to defer the tax until you pass away.  At that time your heirs will get the property tax free.  That's a pretty big legacy to leave to your children.

Again, if you're thinking to move as well you'll have two property sales at work.  Your primary residence will most likely qualify for the primary residence exemption and you will get to take the first $500K in profit tax free.  The investment property you can defer the tax through the 1031. 

A pretty nifty scenario starts to shape up if you were to do a 1031 now and purchase a couple of replacement investment properties.  Maybe one cash flows better than the other.  But the second one is in a fantastic location where you may want to live one day.  Do the 1031 and then in a year or two sell your primary and take the $500K tax free and move into that nice investment property converting it from investment to your primary.  Changing the use of a property does not create a taxable event.  And meanwhile you've still got $500K in your pocket to have fun with.

You've worked hard for years.  Time to plan that peaceful retirement.