Creatively Save on Tax Payment from Sell

[Alyse Moore]

Hi Everyone!

I'm planning to sell my property next spring so I can officially pay-off all of my student loans. I bought it in July 2017, and house-hacked for about 8 months living in the basement and rented out the other 2 units. I moved out about 3 months ago. The property cash flows very nicely, and with a bit of luck and planning my property appreciated about $75-$100k since I purchased last year and properties are selling about 15-20% over asking in that neighborhood, so my profit should be nice. Next year I'm buying more property, looking at only 6-8 unit multi family. 

Is there a creative way to save as much on taxes as possible from selling my current property? My main concern is having the cash to payoff everything; no partial payments so retaining as much cash as possible. I thought of doing a 1031 into the 6 unit I purchase and doing a cash-out refi, however that carrying out is circumstantial. I'll definitely consult with my accountant as well but figured you guys would have experience with this. Any ideas? 

[Linda Weygant]

Originally posted by @Christopher Phillips:

@Alyse Moore

You live in the property. So, you can’t 1031

She could do a pro-rata 1031.  @Dave Foster has discussed that before.

Unfortunately, Alyse, you've got two conflicting goals on this one.

1.  Pay minimal taxes

2.  Have cash to pay down debt.

As it seems you are aware, if you 1031, you don't get the cash and you would have to refi.  This isn't a bad solution and would be the best one to accomplish both goals.

The question I have is maybe not workable, but the obvious solution would be to hang on to the house and use the cash flow to pay down debt.  Doesn't knock it out as you might otherwise like, but does allow you to keep the equity, retire debt now and use the cash flow later once the debt is gone.  win/win/win, no?