Shout Out to All Milwaukee RE Investors!

[James R.]

Hey there! I've been dormant here on BP, but still active in real estate investing. I am selling one of my cash cow duplex properties to buy a SFR. Need a real estate tax accountant to guide me through the capital gains tax and how I appropriately document using the funds from my sale to re-invest in another property. Any suggestions? I look forward to your responses. Thanks in advance.

[Marcus Auerbach]

@James R. - your long term capital gains tax will be 15% (assuming you are making less than half a million, otherwise it would be 20%) on the profits realized. This also recaptures the annual write offs you probably took. Let me speculate a bit, sinze I don't have any details: if you had an average duplex it for 10 years and gained 50k in appreciation you may look at 80k of gains that are taxable at 15%, so you will owe about $12,000 in taxes from the sale. Obviosly super simplified example numbers, but just so you understand the magintude.

You can avoid that with a 1031-exchange, which allws you to kick the tax can further down the road (it's still there, just shelved for later). This is a bit complicated, especially for buying a single family home. You may find yourself in a position where you spend more than 12k extra on the new one, because the 1031 does not let you be as nimble as you would be. The process was designed for slow moving assets, that you can acquire without competition, not for a hyper competitive market like we have currently in Milwaukee. So it may not be worth it.

If you want to do this read up on 1031 and you can find a lot of 1031-experts here on BP. Some title companies will also faciliate the process, but you want to make sure they really know what they are doing!