Sell both properties in LA or not?Any Tax Strategies to offset capital gains?

Question

Hi!

My husband and I are potentially making some big changes in our living situation in the next 3 - 6 months.

We have a multi unit property in North Hollywood.  A 3bed/2bath front home and a 2bed/1.5 bath duplex behind.  All these three units are renting at below market value.  We used to live in the front house and we're now in Sylmar at a 4bed/2.5bath townhome that we purchased in 2021.

So basically, one is now turned into an investment property and the other one is our home.  We're thinking of selling both and moving to another state.

The North Hollywood home is valued at 1.5M and we owe 720K on it.  The Sylmar home is valued at 570K and we owe 470K on it.

Our issue is the capital gains tax. And if we do 1031 exchange with the N. Hollywood home, the property we purchase in exchange of that will need to be an investment property since it has to be a like kind property. And the sylmar home, we can either sell or rent it out in LA while we live at another state.

If we sold both and just pay the capital gains, I think we'd still have enough to put a significant down payment on another home somewhere else and have enough left over to put into savings and perhaps even capital to spend to grow my existing business (online piano studio business).  My husband can potentially take a year off from work to figure out what he wants to do next, or even just help me build my business.

Our biggest fear is moving away from my mom, dad, aunt and uncle who are all in LA and are in their 70's.  I am their main caregiver and moving away would be very difficult.  Technically, I'd want them to move with us but they are die hard LA fans who I can't pay enough to move with us.  :(

What are different scenarios and options would you think of?  What would you do in this situation?

Robert Reynolds · Answer

Hi Kat,

Moving out of state is a big move, especially with aging parents, so that will be probably the hardest decision you will make here. As far as selling, I would definitely need to know a little more about each property, but talking with a tax professional, and seeing if you could sell the multiunit in NHWD with the tax benefits of it having been your primary for 2 of the last 5 years, seeing if that's an option. I would try and do that if possible, obviously your tax professional can let you know. Let me know if you do want to sell that multifamily, I have a buyer in the area looking to buy a similar property as long as the rents aren't too below market rents.

Let me know if you need anything in the meantime. Would love to hop on a call and go over your situation in more detail.

Thanks,

Robert

Henry Clark · Answer

Talk with your tax accountant. See if the first property you can sell tax free as your primary residence 2 out of 5 years.  You can do the same with your current property.

There is a limit on your gain which can be avoided, so check.   Same goes for your parents houses.

If you don’t have that much gain on your current house, you might try seller financing if you do t need the money and try for a higher price. Require a significant down of say $200,000 down so they have skin in the house. Unless you have a lot of equity, I would pay the taxes and not do a 1031.

If with your parents you have multiple property deal, you might try to package the deal to reduce commission percent.

Kat Hughes · Answer

Thanks Dave,

All great things here.  Not sure if you're the same Dave Foster that Lindsey from David Greene's team have worked with but she mentioned a Dave Foster who facilitates 1031 exchanges.  So if it's you, I might meet you soon.  We've decided to keep Sylmar home for now but will proceed with the sale of the N. Hollywood home.

Kat Hughes · Answer

Thanks Henry!  Seller financing on our current house is an advice I haven't gotten yet from others and that's a great option as well!

Dave Foster · Answer

@Kat Hughes, That one was with John Papaloni (The John Papaloni Podcast).  I don't know when it will air yet.  But if you watch it and see me squirming - I didn't have to go to the bathroom.  I knew I needed to get to your call :)

Dave Foster · Answer

@Kat Hughes, Again my apologies for that.  I was being interviewed on "The Podcast That Would Never End" :).

My staff tried to respond and I'm so glad I was able to call immediately after I got off the podcast at 12:15 your time (believe me it seemed like an eternity) and talk to you and answer your questions.  Hope that makes up for your inconvenience.

I'll let you update the folks on whether I'm a ghost or not :)

Kat Hughes · Answer

Hi Dave,

I booked a call today through your site at 11:45am PST.  I was by my phone waiting for the call but I didn't see any calls come through.  I also emailed the email listed on the site but didn't get a reply.  Not sure who I should reach out to but we would like to chat with someone asap about our sale.

Dave Foster · Answer

@Kat Hughes, I believe it is indeed !  We're connected now so feel free to reach out at any time.  As you're working toward that sale keep one thing in mind - Your QI for the 1031 has to be in place prior to the closing of the sale.  I still get very sad calls every month from people who just closed their sale and are ready to do their 1031.  All I can do is weep with them a little bit :)

Sell both properties in LA or not?Any Tax Strategies to offset capital gains?

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