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Updated about 4 years ago,
Question about avoiding Cap Gains when selling a rental
Hey all, I'm curious to get your thoughts...
I have a rental property on the other side of the country. I bought it 4 years ago and it's been nothing but a pain (I have another rental not far away that's been much easier to manage for various reasons). My current renter is about to end her lease end of June. The market is pretty hot in that area (I got in at a good time) and so I'm thinking I want to sell it.
Here are the numbers: I bought it for $170k (never lived in it, was an investment purchase), have about $115k left on the mortgage. If I do some basic reno's for about $15 (~6 weeks timeline) I can prob sell for around $310k pretty quickly (within a month). So that's about 3-4 months of carrying the mortgage, which I"m in the position to do. I want to buy a place where I currently live (I currently rent here, just moved 6 months ago) but I'm not quite sure I'm ready to buy yet. There are lots of reasons including a bit of job insecurity given COVID, I want to live here a year first to get a better of what neighborhood I want to buy in, in my current price range I might have to downgrade from my rental (I get a realllly good deal atm b/c my landlord stays in the third bedroom twice a year for a couple of weeks), when I buy I want to offset my mortgage with a roommate but am not comfortable doing that in the COVID environment. I also have a feeling that prices are going to drop here come January due to some airbnb laws taking effect then. Anyway, I could go on. The problem I'm trying to solved for: I'm trying to figure out how to avoid paying cap gains taxes on the sale if I don't do a 1031 (though one option is to get an investment property here.)
Are there any other ways around this that you all can think of? Even if it breaks up the money? Like could I put $20k into a 401k and not get taxed on that? Are there several options like this available? You guys are all so smart and thoughtful, I'm curious to hear all of your thoughts. Thanks in advance!