Would you 1031 Exchange in this situation?

Question

Hi everyone!

I've owned 2 Detroit rental properties for about a year. I'm thinking about selling one of them to fund the down payment for a FL duplex.

I'm wondering if you would use a 1031 exchange for this type of situation:

• Purchased all-cash for approx $62,000.
• Rents monthly for $850.
• Thinking of listing for high $60k, low $70k to keep the rent/income ratio over 1%.

I know that I would really not need to 1031 if I break even (no capital gains). Was wondering your thoughts on 1031'ing if my gains are in the $5k-$10k range. Worth it for the hassle, or should I just absorb the gains?

Thanks!

Jacqueline Gardiner · Answer

I concur. Not worth the hassle.

Christopher Pound · Answer

Thanks everyone! That's what I was suspecting.

Bill Exeter · Answer

Hi @Christopher Pound,

The closing costs on the sale of your relinquished property would likely wipe out any gain.  The costs to structure a 1031 Exchange would be $900 to $1,000 and the time constraints would make it challenging.  It is probably better to sell, pay any small amount of residual tax, and not have to worry about the 1031 Exchange deadlines.

Sebby Gabre Madhin · Answer

Your capital gains tax likely falls in the 15% range, correct?  It costs a bit of money to set up a 1031 exchange with intermediary etc so doubt that you’d come ahead by much in doing a 1031 for such a small gain, since your tax would be $1500 or less in best case scenario ($10k gain)