Should I take advantage of the situation and do a 1031?

[Yeng Hawj]

I'm getting ready to sell a SFR, there's about $200k of equity in it. This property was bought as a rental and financed under my name but realistically owned by my sister and brother-in-law. They did the same for us previously so I was returning the favor. Unfortunately they're splitting up and now selling the house; it'll be on the market soon. Once the house sells, any gains will get split to them minus any capital gain taxes that I will have to pay for. With cap gain taxes being estimated around 30% ish, that's about $60k in taxes!!! Instead, I was thinking maybe I can use this opportunity for myself to do a 1031 exchange into a multifamily property investment, and figure out another way to pay off my sister and BIL (possibly gather cash from other family investors). To convince them of this method, I would have to make the deal sweet for them as well. Would it be a good idea if I took on the taxes myself? Any creative ideas any of you may have to take advantage of this situation? Thank you all in advance.

[Dave Foster]

@Yeng Hawj as borrower and title holder you already are the tax payer for that property.  I know that theoretically it's your sister and bil's house but if push ever comes to shove you are the one on the hook.  So it sure doesn't hurt to try to work a deal with them.

It sounds like they're each expecting to net around $70k as their final settlement.  You could offer them more in exchange for letting you do the exchange and then refinancing after the new purchase to pay them off.

You could also to the 1031 and buy two properties - one for each of them.