Sell or keep? Los Gatos area

[Gayle Eisner]

I own 2 homes in Bay area, should I sell one? One is paid off, near Monterey, a block or so from the beach, a rental , and the other, my residence, in Santa Cruz mountains near Santa Cruz, with a low mortgage.  The house I live in is very old, built in 1931, in the redwoods and close to the San Andreas Fault and in a high fire danger zone, BUT has been a fantastic rental as well as my residence at different times.  I am very concerned with the economic forecast, although homes in my area are selling with multiple offers at present -  Should I keep my home property? or sell? and 1031? for something less expensive in a less risky area?  I house hack and rent the downstairs studio which covers my mortgage payment.  The other home, near monterey, has been rented by the same tenants for the past 4 years and I have just raised the rent, but not by much due to the looming economic depression so as they are happy and want to continue renting.  But, of course, there are always taxes!  Some of my neighbors are selling quickly and I fear I may miss out on a great opportunity to sell at a good price.  Jump ship?, keep?  Thoughts?? Advice??  

Also, I was debating on whether to 1031 exchange it (as it is a rental all year down stairs and I rent upstairs out in the summers, I think I would qualify or just take the homeowner exclusion of $250k?  I am concerned about taxes but the 1031 is a lot of work as I am living out of state currently and don't plan to return until October 2020. I feel I may miss the opportunity to sell when I return so debating whether to sell now, later, or keep the property.  

I am employed and have great credit but I just don't want to go into debt any more to take cash out.  But what do you think?  Thanks!
 

[Dave Foster]

@Gayle Eisner You'd have to look at dates and personal usage.  But if you can calculate that you have used that property as your primary residence for two out of the last 5 years then you would indeed qualify for the first $250K of profit tax free ($500K if married).  That's good news.

Better news - You can do a 1031 exchange and indefinitely defer the tax on gain on each of those properties.

Best news - on the one in Santa Cruz you can do both.  You could take the first $250K of cash tax free and then 1031 the rest.  So it's conceivable that you can actually eliminate your debt and still reinvest some cash into another 1031 vehicle and put some tax fee cash in your pocket.  That's one heckuva prepper looming depression plan!!!

Go Banana Slugs!!