Tax advice | To 1031 exchange to not...

[Jonathan Chavez]

Hello, fellow bigger pocketers. I'm trying to weigh out my options on whether or not to do a 1031 exchange on the planned sale of a duplex I am about to list. I estimate that we will be on the hook for approx $100K in capital gains tax (Federal and CA) if we cash out.  I figure I could roll that into another income prop and I would essentially be using that $100K as a tax-free loan as it would be $100K less than I would need to finance. 

At the same time, I am being told by a family member that the capital gains tax has a high likelihood of increasing in the next 4-10 years depending on the party that is in the white house... He says I should pay the tax now as he thinks my tax bill will get higher if I choose to cash out later. 

I figure the "interest-free" loan on the $100K that I will not pay now along with the re-set of my depreciation recapture bill should offset the risk of a slightly higher tax bill if I decide to sell and cash out in the next 10 years? 

Is my logic off?

I'm not looking to make this a political question but I'm wondering if anyone here is taking this into consideration with their investment strategies.

Thanks-

[Natalie Kolodij]

Did you have your tax pro calculate the gain? Cash at closing and taxable gain are not the same. 

Did you occupy 1 of the duplex units at any point? 

If you're looking at a 1031 people call it a "swap til you drop" -if you plan to defer tax forever the rate doesn't matter. 

Your friend may be right- our taxes are historically low at the moment, while they may not be higher in the next few years, they may be at some point in our life times. 

Talk to your tax pro- figure out the actual numbers.