All Forum Posts by: Diya Wahi

Hi we are a referral real estate agency and we have off market properties you won't find anywhere else!

If you are looking for your next property reach out to us to learn more. 

Hey @Diya Wahi, not everyone wants to conduct a 1031 exchange so my tax advisor has suggested a "lazy 1031" to me in the past. This is where they sell a property and purchase another property within the same year. Then, conduct a cost segregation study on the new property within the same year and accelerate depreciation to cover the gain from the 1st property that was sold earlier the same year.

Their tax pro can help them work out the details of all that but that's the gist.

Hope it helps!

@Diya Wahi what is the basis of their property? You said they owe $300k on the loan, but that still doesn’t say a whole lot. How much did they purchase the property for and how much did they spend in renovations? What is their net gain after excluding sales costs (commission, etc).

Also ask how long they have rented the property out for and how much depreciation they’ve taken. And also determine if they have passive losses. Once you figure out how much depreciation recapture they have and net gain, then you can determine if it’s even worth trying to avoid capital gains tax.

My suspicion is their gain and recapture isn't worth pursuing 1031x, OZ, DST or any other vehicle to minimize cap gains tax. Just take the net proceeds and capture the Net Present Value of that proceed.

Hello Diya, 

We manage about 300 individually owned properties in Huntington Beach. If they would like a rental analysis to make sure their tenant is paying market rent we are the experts and are here to help. 

Thank you,

@Diya Wahi

Do they even know how much they would pay in taxes if they sold?   

The answer is usually no idea at all.   Yet, how can they make an informed decision without having the right information to begin to analyze their options.  

What could they do with six figures in a lump sum versus a break even deal with no cash flow?  

As always "it depends" 

Having them move in for 2 years doesn't fully erase their gains, FYI- it's a sliding scale, make sure they talk to a CPA. 

On to the meat of this question- I don't like the term "avoid" capital gains. That typically is a misnomer and shows everyone involved is inexperienced. You defer those gains, not "avoid" or "eliminate." If you strategize properly, you can defer them forever, which is the goal in my mind. 

The best solution here is a 1031 exchange- they can move the equity to a new property, hopefully with much better returns, and defer the gains. 

Once you have a big chunk of equity, I'm not a fan of cashing out because shifting that equity is how wealth is created. If they want cash, maybe a HELOC is a better bet?

Lots of options, but a 1031 is the only way to sell without paying taxes- at least for now.