Should I exchange or take the hit now?

[Igor Messano]

Hi everyone,

I have a complex decision I am trying to wrap my head around. I am selling two SFH set to settle in Jan and am trying to decide if 1031 exchange is the best option. My main goal is to have funds for a development deal that I am pending the seller to clear some title issues on the land (this could be 6-8 months now with Covid). It's highly unlikely that I would be able to close on the target property in 180 days. The added benefit here is that I had 2 Helocs on these SFHs that I used to purchase a MF property. I just refinanced that property and have the cash to pay the loans in my account but did not apply it to the HELOCs.

Here are some numbers:

1) 156k in capital gains on the sale of the two SFHs
2) Only 76k in gross proceeds of the sale since I still have the Helocs outstanding
3) 40k estimated capital gains tax

So I am trying to find a way to 1031 out but in a way where I can still quickly pull out the proceeds from the 1031 within the next 6-9 months and leave only the 40k that would have gone to the government invested. Essentially getting the cash I need to develop and instead of giving 40k away, using it to own another property.

Note that the total sales price is 285k so I would need to buy something at least for that. and I know doing so and leaving only 40k invested is not an exact science but if I can come close to that it would still work.