Tax implications Selling then buying

[Derek G.]

Hi All!

I know this question has probably been asked a million times. However, my searches are proving futile. I apologize in advance. I have currently ony purchased houses, but am now looking at selling some of them.
1. I sell a house for $150,000 (it's paid for)

2. Buy a house for $100,000

Do I owe taxes on the proceeds from the $150K deal, or do I owe taxes on the $50K left over after the new purchase? 
This is a major oversimplification, but it's just to satisfy my curiosity.
Thanks in advance guys/gals

[Dave Foster]

@Derek G. described - a 1031 exchange.  If you want to continue investing in real estate the 1031 can be a powerful tool.  Mindy's right there's a few more rules and regulations but not 9000 of them.  It must be performed for you by a qualified intermediary but for you it is as simple as selling and then buying with some timing and valuation restrictions in the middle.  Your QI guides you through it.

3. When you do a 1031 and want to defer all tax you must do two things - first you must purchase at least as much as you sell (in your example that would be roughly $150K).  Second you must use all of your proceeds in the next purchase or purchases.  Again in your example you were talking about selling for 150 and buying for 110. In that instance you would pay tax on the difference but shelter any remaining profit.  An easy solution to that would be to buy two properties that total at least the $150K.  Doing that would defer all tax on the gain from your sale.

With paid off properties you have a wealth of options available to either replace with other paid off property or use the proceeds as down payment for multiple properties.  If you were thinking to take that $50K out to do something else with you could do that by purchasing a replacement property that is worth at least the $150K an then immediately refinancing it and pulling the cash out.  That cash is not taxable and available for you but you also completely deferred all tax on the sale of your old property.