Secondary home in AZ - Selling now or renting out to 1031 later?

[Timothy Tran]

Hi, new here on the site but started getting into the content and wanted to post about my situation.

My family owns a property in AZ that I used during graduate school (didn't pay rent). I had set up all the utilities and been paying the bills but am moving out now and the home counts as a secondary home that doesn't qualify for capital gains tax exclusion. My family is debating on selling the house or renting out the property. I'd like to hear others' inputs and see if there's things I'm missing for calculations.

We purchased the property years ago at $285k, and the real estate agent says we should list at median price of 495k. There's some minor scuffs but he says the house is in good condition and we can sell as is. There is about 190k left on the mortgage. We lose 5% from listing the house to the real estate agent, have to pay capital gains tax living in california (~15%), pay local taxes in arizona (8%), and then pay CA income tax (9.3%) from selling the home.

- Numbers: capital gains = 495k - 285k - 5%(495k) ~185k... After taxes ~60k, net profit = 495k - 285k - 60k - 5% (495k) = 125k

The alternative is to rent out the house for $2195/mo. We pay $900/mo for mortage, $50/mo for HOA, $60/mo for insurance, $2500/yr for property taxes, and then 10% to rental company with $1000 initial fees. Doing this would allow us to do a 1031 to purchase another property (a duplex for me to live in while I work to get up to buying a house on my own) in California which is closer and can use for home equity line later. We expect the housing market to go down, not sure how much but I'm saying $450k as a tentative value. We'd have to pay fees, repairs, and our real estate agent, so I was planning on 10% of the property sale price as a number.

- We'd make ~$8k from renting out, potentially sell at $450k and avoid taxes and pay ~10% of selling price for closing costs. Net profit = 450k - 10% (450k) - 285k + 8k = 128k

Are there things that I'm not considering? Do these numbers make sense or seem appropriate? Would love to get some good resources on this and get some opinions on what is best.

[Matt Giacinto]

A refinance could be possible. However, I think you have the right idea to open yourself up for an exchange. They're a part of my specialty. Let's connect!