1031 Exchange or Index Fund?

[Emma Whear]

I'm Emma Whear. I'm a huge BPMoney fan. Here's my quick stats:

-21

-Living in Moscow ID

-Senior in College

-Real Estate Agent in Idaho and Washington

I bought a duplex back in October of 2020 for $206,000 (closing costs paid by seller). My husband and I put a whole lot of sweat and $3,000 into the property.

We planned to buy and hold, but are moving to Kentucky right after we graduate from college, and long-distance land lording isn't for us.

Currently UC for $254,000 (no agent fees, because I'm on both sides of the deal).

So... here's the hot question:

A. Should we take the money, do a 1031 exchange, and go buy a home quickly in Kentucky

B. Should we just pay the capital gains taxes (haven't owned for a year yet) to give us more flexibility in buying

C. Pay the capital gains and stick the money in our Vanguard Index Fund

Hot tips?

[Dave Foster]

@Emma Whear, Your decision basis is going to be on the opportunity cost and real cost of the tax on $44K or profit.

That profit will be taxed at ordinary income rate.  So you can figure $12-$16K Of tax.

Questions to ask yourself:

1. Can I find a property within the timelines of a 1031 in KY that will satisfy my investing parameters?

2. How long will it take me in the vanguard fund to make up that much tax?

3. If I had an extra 2,3 or 10 months could I find a property that would be $15K cheaper than I can find now?

I'm with @Christopher Leet, Even with the timelines of the 1031 good purchases are possible.  And $15K of tax is a powerful incentive.