New Investor eager to learn!

[Cedric Van Duyn]

Hi Everyone,

My name is Cedric and I am a father of 3 young boys. I need to find a way to provide for their future beyond my current salary, and that is why I am looking at investing in real estate. I am located about 1 hour outside of Seattle, in the city of Gig Harbor. I am looking to invest in the broader region.

I recently sold our rental property which had us paying in every month and I am currently under a 1031 exchange. I need to locate a property in the next 40 days in order to reinvest. If ever I needed a crash–course and some helpful direction, it would be now!

I want to invest in a situation which will yield positive cash flow instead of us having to pay in. I have been told that duplexes may be a good option to increase rental income, so I am looking into this.

One question: Under a 1031 exchange, do I understand correctly that I need to invest the same amount as what I sold my relinquished property for in order to not pay any tax? (If I invest less, how much will I be taxed, approximately? Example?)

Thank you for any help!!

Cedric

[Bill Exeter]

Originally posted by @Cedric Van Duyn:

Hi Everyone,

My name is Cedric and I am a father of 3 young boys. I need to find a way to provide for their future beyond my current salary, and that is why I am looking at investing in real estate. I am located about 1 hour outside of Seattle, in the city of Gig Harbor. I am looking to invest in the broader region.

I recently sold our rental property which had us paying in every month and I am currently under a 1031 exchange. I need to locate a property in the next 40 days in order to reinvest. If ever I needed a crash–course and some helpful direction, it would be now!

I want to invest in a situation which will yield positive cash flow instead of us having to pay in. I have been told that duplexes may be a good option to increase rental income, so I am looking into this.

One question: Under a 1031 exchange, do I understand correctly that I need to invest the same amount as what I sold my relinquished property for in order to not pay any tax? (If I invest less, how much will I be taxed, approximately? Example?)

Thank you for any help!!

Cedric

Hi Cedric,

Yes, you must acquire one or more replacement properties that have a total value equal to or greater than the net sale price of the relinquished property that you sold.  The net sale price is your gross sale price minus selling expenses (not all closing costs) such as broker's commission, title insurance expense, escrow fees, recording fees, etc. 

You can trade down in value, contrary to popular belief, and it will not harm your 1031 Exchange, but you will pay taxes on the amount that you trade down by.  The difference is generally applied toward your depreciation recapture first and then your capital gain.  It may also trigger a Medicare Surcharge (Obamacare tax) depending on your income tax bracket (Adjusted Gross Income).