TAX ADVICE - $70K in Equity - What would you do?

[Kerry Smith]

Hello BP!

Thank you for taking a moment to read my post and offer some advice -- I appreciate you!

My wife and I are about to sell our former primary residence in North Carolina. The home is being sold to a family member, and based on the seller's net sheet, we should receive approximately $70k in equity back. We currently own two duplexes in Washington state, and looking to buy more. We have considered a 1031 exchange, but we do not have any deals in the hopper.

What are some tactics we can use to save some of the taxes we will have to pay if the $70k hits our bank account?

1031? Self-Directed IRA? Other options?

Thank you very much for your advice!

[Paul Allen]

If you were stationed more than 50 miles from the house from 2012 - 2016 you may be able to disregard that time in your calculation of the "lived in for 2 in the last 5" test.

See page 6 of pub 523 for details.

https://www.irs.gov/pub/irs-pdf/p523.pdf

Also, you don't pay tax on "equity" when you sell a house. You pay tax on unrecaptured section 1250 gains (depreciation recapture) and capital gains. (So you may want to look at those numbers if you're trying to estimate your tax burden when you sell - not the equity.)

Getting out of the tax on depreciation recapture if you rented the house is nearly impossible (if you have income), but you might be able to get a section 121 exclusion for the capital gains based on the "stop the clock" provisions for deployed military personnel from pub 523 (referenced above).

Thank you for your service, and GOOD LUCK!