Avoiding Capital Gains Tax and Reinvestment Options

[John Clark]

Bottom Line Up Front: I would like to avoid capital gains tax and utilise the profit on my potential sale to reinvest in a property that I could cash flow on even with the concern in the market. 

Hi everyone. I need some advice on some of the options I am considering in regards to selling a 4 bed 2 bath in Coral Gables, Florida. I bought it in July of 2017 at $380,000 with a 30 year fixed at 3.75%. It has now been appraised to be worth about $475,000. I am in the Navy and have orders to leave the area in May of this year, and after crunching some numbers I do not believe I would be able to cashflow enough if I rented it and the concerns in the market might further reduce that cashflow margin in the future. I am interested in the some of my options for avoiding capital gains tax as well as what a good option might be for reinvesting the money. 

1. How can I avoid capital gains tax?

a. I know there is a possibility of utilising a 1031 exchange but I also believe there is a 180 day window in which I would have to close on a property utilising the gains of my sale. What are some other aspects to this option that I need to be thinking about.

b. I have also read that if I can show that the house was my primary residence for the last two years I can also avoid the capital gains tax. The issue I see with this one is that I did not close on the house until July of 2017 and will be leaving in May of 2019. Are there any other options with this idea that would make sense for my situation.

c. The other options I have heard of is what I believe to be called a Deffered Sales Trust (DST). Is this even an option for my current situation and what are the pros and cons of a DST

2. What to reinvest in? My primary interest is to cash flow now on a property rather than build wealth down the line, but if someone thinks I have missed some considerations on this idea I am all ears.

a. I do not know where the rest of my career is going to take me so I would like to purchase a property that I could have managed for me. With this, I have explored the idea of using a turnkey company that would also take care of rehab and finding tenants. Although I know it would limit my equity in the property I like the idea of limited management. Thoughts? 

b. My other idea would be to purchase a property on my own and have it managed. My concerns with that would be accurately assessing the numbers on the property so I could feel as comfortable as possible that I would cashflow and I will have limited time for rehab and management. What is the best way to alleviate the these concerns? 

Any thoughts or recommendations would be greatly appreciated.