How to defer/avoid capital gains when selling a duplex

[Jennifer Mattek]

Hello, Our CPA told us today that:

- Based on a selling price of $215,000, I am calculating a gain on the sale of the property of about $127,500. This amount of gain creates approximately $24,500 of additional federal tax and $5,000 of additional WI tax.

Our CPA told us he doesn't get involved in the exchange rules because of the complications. Ahhhh!!!

We are looking to get out of being active landlords, therefore not looking to buy another rental property to manage. We may be open to investing in real estate opportunities as passive investors.

1) What are our best options to defer capital gains payments?

2) How long after the property closes DI u gave to reinvest? 

3) If we close on the property in Dec 2022 but reinvest on early 2023, do we still defer capital gains or will this impact 2022 taxes?

4) What do I need to do now before the property closes to ensure I’m not taking a huge hit on my 2022 taxes?

Thank you in advance.

[Dave Foster]

@Jennifer Mattek, 

To defer the tax in a 1031 you must purchase actual real estate. this will eliminate most passive syndications which are set up so you are buying not real estate but an interest in an entity that owns real estate. For you the most common options to move into passive investing are going to to be Properties managed by a 2rd party, Vacation rentals with onsite management, NNN commercial properties with much longer leases, and Delaware Statutory Trusts or oil/natural gas/mineral rishts interests.

You must use a Qualified Intermediary who must be involved prior to the sale.  This is why your CPA isn't that familiar with them.  They cannot be your QI.  But from the date of sale you have 45 days to identify and an additional 135 days after that to close on your new propety .

Your exchange has to be done before you file your next tax return.  so if you sell in 2022 it will be done before you file your tax return for 2022 (if you have to run past 4/15 you simply file an extension) so the exchange is reported on your 2022 tax return.

BIGGEST ACTION ITEM - engage a QI before the property closes or you'll have a big tax bill.