1031 and what happens if you buy 5 properties and sell one

[Chris L.]

Lets say you buy 5 properties using 1031 , when you go to sell do you have to sell them all at once?  If not, how are taxes then taken out.  Lets say the funds in the 1031 were 500k that I purchased 5 properties with them and the capital gains initially avoided was 150k. Now lets say I sell a property for 200k, will the whole 200k be taxed or will only a part of it be taxed? How Are taxes determined when the funds in the 1031 were divided up amongst 5 houses? 

[Clayton Mobley]

@Chris L. Your deferred taxable gain is allocated proportionally. So, for example, if all five properties are of equal value ($100k), then each would be assigned 1/5th of the deferred gain. 1/5th of 150k is 30k, and the original basis (purchase price) for each of your replacement props is $100k, so your adjusted tax basis for each would be $70k ($100k basis -$30k rolled over gain). 

The other way to think of it is that the tax basis of your original property is split evenly five ways, giving each of the five new props a tax basis of $70k ($500k total value - 150k CG = $350k adjusted basis of original prop, $350k/5 = $70k). Both ways work because tax basis+gain = total value. 

So, if you sold one for 200k, your taxable gain would be $130k. Basically you'd pay taxes on the gain from that sale (100k), plus the appropriate portion of the gain from the original 1031 (30k). Also, don't forget that some of that gain would be taxed at 25% as depreciation recapture, even if you never take the depreciation deduction on your taxes. So...take your deductions!

My question would be, why wouldn't you execute another 1031 on this property to continue deferring taxation?