Selling 2 Duplexes - Capital Gains

[Sarah Miller]

Hi!! I am currently selling 2 duplexes in NE Ohio. (BOTH POSTED IN MARKETPLACE) Both are money makers (Net around $500/mo cash flow after PITI and expenses). The only reason I am selling is to pay off student loans. I am also downsizing personally and changing my lifestyle. My question is, one of my properties I will be making a large profit from my base. Is there a way to lessen the blow of capital gains tax I will pay on that? I am not re-investing the money, I am using it to pay off student loans. From my research I have found that this is not likely but didn't know if there were some creative geniuses on BP!!

Secondly, I do plan on getting back into REI once my student loan debt is gone. I have an LLC established currently, do I close it in the meantime? Or is it better to just leave it out there for when I start up again?

[Matthew Schroeder]

If you are going to sell them and don't plan to do something like a 1031 exchange, Uncle Sam is going to want his fair share. The taxation can/will vary based on numerous factors, including importantly, how long you have owned the properties. Best to get a good accountant very well versed in real estate. If you have as much equity as you seem to suggest, an option might be a cash-out refi so you don't have to pay capital gains.

We don't have specific numbers, but remember your cost-benefit analysis of whether or not to pay off your student loans from the sale of your properties should factor in the "cost" of the taxes you would have to pay - it is not as simple as saying student loans are a higher interest rate. You may in fact find that after considering the tax cost, it is better to keep your student loans.