Childhood Property Has Been Transferred to me by quick claim deed...

[Justin Walters]

A bit of a backstory.  A couple of years ago following the death of my father, my mother transferred ownership of a property in another state to me and my wife by way of quit claim deed.  I did not put much thought into it since it was only a few months after my fathers passing and had a lot on our minds and plates.  

Flash forward to now.  My wife and I are part owners in a real estate investment company that has 5 properties (3 are in Maryland, 2 are in Oklahoma).  We are in the process of renovating a property to move my elderly mother into here in Maryland.  That now leaves me with the issue of managing the property in Oklahoma that she is moving out of.  We have now realized that we will be getting hit with a capitol tax gain on the property that was deeded to my wife and I.  I know the obvious route of 1031 but just curious if anyone has any other "out-of-the-box" ideas on how we could avoid these taxes.  We were really hoping to sell the property in Oklahoma and drop the net proceeds into this house in Maryland but we already purchased this house in Maryland because I needed the time to complete the renovations.  With that, we are looking at listing her current property in spring summer 2024 which means we would have owned this house in MD for over aa year so a reverse 1031 is not even an option.

Assuming some of the answers will be to just 1031 it into yet another property.  I have also thought about deeding it back to my mother but I honestly do not know what the tax implications would be then either.

Any ideas will be greatly appreciated.

[Justin Walters]

Quote from @Dave Foster:

Thanks for the shout out @Jaron Walling.  , Since you have a portfolio and it sounds like you're active investors you may want to still do the 1031 and purchase another investment property.  If you're concerned with paying down the mortgage on the MD property you could do a cash-out refi on the replacement property as soon as you purchase it.  I realize that this still leaves you with a mortgage.  But it restructures the debt so it is solely on your investment properties and not on your mom's new house.

Otherwise, sell and pay the tax.  No one ever went broke paying tax on profit.  It just feels like it!

@Dave Foster thank you for the advice.  I had not considered 1031 it into a new property and THEN doing a cash out to pull those funds back out.  Thank you for your time and feedback!