New to 1031 Exchange

[Felipe Ocampo]

I am currently selling a rental property(just signed the offer) that I have had for about 6 years and just realized that the capital gains will probably be pretty steep so I may want to do a 1031 exchange. I originally bought the property for about $208,000, will sell it for about $235,000, and the depreciation has been about $7563 each year. I put about $6000 into capital improvements. I know I need to include closing costs, which I am assuming were around $7,000 for each transaction. That is almost $8,000 in capital gains assuming a 15% tax rate. I currently own about $147,000 on the mortgage. 

My questions are: 

1.How complicated is the 1031 exchange process and is it worth it in my case?

2. Do my numbers above look correct or am I missing something?

3. How quickly do I need to identify the replacement property/properties?

4. What are the typical costs to do a 1031 exchange?

5. Any other suggestions or recommendations? 

[Dave Foster]

@Felipe Ocampo, For the investor your 1031 exchange should be seamless and invisible.  You will be doing exactly what you always do with all your regular professionals - list and sell a property.  And search for find and purchase a replacement investment property.  The 1031 portion that indefinitely defers the tax on gain and depreciation recapture is paperwork performed by the qualified intermediary who is the extra required presence by the IRS to facilitate your exchange.  

The only significant challenge to a successful 1031 exchange is locating suitable replacements so that they can be identified  by the end of day 45 after your close.  In this sellers market the 45 day deadline is a looming barrier to you.  So the best recommendation I could give you is to start shopping for your replacement now!  

Although you have 45 days after your sale closes to identify your replacements, I wouldn't leave it to then.  Try to get under contract right now for your replacement.  Use your sales contract to demonstrate your seriousness with the seller.  Try to get a contingency for your purchase to close first.  Offer extra earnest money. Use every trick you can to get a contract now or as soon after your old property closes as you can.

Focused pro-active exchangers always fare better in a competitive market.  You provide the swift action and your QI serves as your trusty guide through the maze of regulation.  And you'll do just fine.