Pull money out after 1031?

[Carleen L.]

Hi!  I have a rental out of state that has dramatically appreciated in the 24 years I’ve owned it (paid $110k, MV is $340-375k). It’s been a rental for the past 15 years, and is fully paid off as of 5 years ago. It rents for $1750/month and has had the same excellent tenant for years. I’m thinking of selling to pull some money out, but know I need to do a 1031 exchange to avoid paying capital gains on just about the entire sale price. My question is:  can I then turn around and sell the new 1031 property and keep some of that money liquid?  I assume I would have to hold the new property for awhile, but how long?

Assume I need a big chunk of cash and don’t have a W-2 job/can’t get a mortgage against it. The question is can I ever pull that money out without paying capital gains?

Thanks!

[Ashish Acharya]

@Carleen L.,

When you say pull money out, you mean pulling money out by selling the new acquired property ? 

If yes, then what is the purposes of the 1031 exchange? As soon as you sell new acquired property, you will have to recognize all the gain that you had just  deferred, not avoided.

Maybe your understanding is that once you exchange the property, the gain that is realized on the first property vanishes, but that is not true. 

Your old basis of 110k is the new Basis of the house that you are going to exchange. So even though you might do  the 1031 exchange with a house valued 375k, you basis in the new  property is still 110k. So when you sell your new Propery at 375k, you basically get tax at the same amount.

if you are eventually going to sell within few month, why spend money on 1031?

Rather, why not apply for a Line of credit to get some access to cash ?