Newby from Yorktown VA

[Nick Fegley]

I'm Nick Fegley. I sure wish this site would let me upload a pic from my iPad or iPhone! I'm in the military, bought 4 places, lived in 3 of them, and have sold 1 with 1 pending. I want to learn how to do my taxes for my rental, and the affect of selling it? Also my pending property was an investment, so I think I'll owe 15% CG next year, but unsure of that as well. Wondering if I should form some sort of corporation so I can reinvest money without paying CG and buy a car and write it off as a company expense. Any guidance on books is greatly appreciate. Sorry for no pic, it might be user error. 😎

[Clayton Mobley]

@Nick Fegley Welcome to BP! First, I agree that the property you have pending will likely not qualify for a 1031, depending on what you mean by 'pending'. To have a valid 1031 you need to have a QI involved prior to selling. You also would likely not be able to meet the timeline requirements of a 1031 - you have to have like-kind props identified (documented legally with your QI) within 45 days of selling your prop and have closed on whatever props you want (of the ones you identified) within 180 days of the sale. So if 'pending' means you're waiting for a buyer's bid to go through, then you're out of luck. If pending just means it's on the market, you might be able to swing it if you move fast. 

Even in you can't use it now, the 1031 process is a great tool for building your portfolio. However, any CG you defer must be rolled into a new like-kind investment prop. Not a primary residence, not a new car, sorry. However, if you have a property that you have lived in for at least 2 of the previous 5 years (so it doesn't have to be the last two years, could be 2013-2014, for example), you could sell it and write off $250k of CG (or $500k if you're married). In that case a Section 121 write off would be better than a 1031. Any written-off CG is yours to do with as you please - so hello new car!

Also bear in mind that if you've been taking the depreciation deduction on your rental, then your tax basis is reduced by that amount. Any CG equal to the cumulative amount of depreciation you've taken previously is considered depreciation re-capture under Section 1250 and is taxable at up to 25%. So you may end up paying more than a flat 15% on your total CG if you aren't eligible for write off under 121 and you don't execute a 1031 exchange.

If your current prop is just on the market (not pending sale) then I would recommend you get in touch with a QI (like @Dave Foster who's already commented here) to see what you need to do to qualify.

Hope some of that helps.

Best of luck!

Clayton