Eat the $100k tax on $400k sale?

[Bryan H.]

I have a 1br condo in prime Dupont Circle neighborhood of Washington DC, - owned it for 27 years - could list it for $425k.  Fully depreciated so $100k tax bill due at sale.   It was long overdue for full renovation, (all surfaces) and I just finished that, so I’m at a crossroads. 

Rent or sell.  

I rely on the 20k annual net income, but that’s only a 5% return at best. 1031 exchange seems impossible in practicality with the timing etc…I’ve been looking and not finding a deal to move into. 

Would anyone ever just eat the tax in this situation in order to have funds at the ready for the next deal/better investment? 

I’d be left with only around $270k after selling fees,  if all went smoothly. $270k in Scwab money fund would get me $15k/year while I’m waiting to pull the trigger on something.  Some background information - I see new hvac $10k, new windows $10k, and building assessment $10k in the next few years on this property. 

I should think a move-up property exists somewhere in the $600-800k range that would cover a mortgage on top of my $400k down payment and still net me $20k/year or more, but not in the markets I’ve looked (DC area and my local NC area) . I need time to figure that out. 
More background info - I have no real W-2 income. My income is from 3 successful airbnb’s and this condo.  

If I get renters in place right now, take a year to figure out which market makes sense, I still don’t see a realistic path to 1031 due to timing with renters/sale/etc…am I wrong about that? 

[Dave Foster]

@Bryan H., You've got 27 years of compounding deferral already in the bag. I wouldn't let go of $100K lightly. In your situation, most of my clients will start the 1031 and see what properties are out there. They will either purchase a property that meets the 1031 requirements. Or they will purchase both a property and a DST or second property so they can get the benefit of depreciation back. It's possible with a DST to add significantly more depreciable basis without having the risk of debt. And the depreciation benefit alone would have an additional $10K or so of real benefit to your income each year. All of a sudden $20K and 5% becomes $30K and 7.5@ - not counting amortization of loans and appreciation.

There's no penalty for starting and not completing a 1031.  I'd at least try before I stroked a $100K check to the IRS.