I am considering selling a rental property that I have owned for 10 years and immediately (within 30-60 days) buying a much more expensive rental property. Wondering if a 1031 exchange is possible and if it would be beneficial to me
CURRENT PROPERTY
Bought the current property for $212K ($50K down and 162K mortgage)
Made $53K of improvements
Claimed a total of $63K of depreciation on schedule E over the years
Adjusted Basis is $202K
I plan on selling for $280K
Less approx. selling costs of $18K leaves me with $262K from the sale (mortgage is paid off)
Therefore, my capital gain is $60K
I calculated Capital Gains tax due of approximately $18K
NEW PROPERTY
I am planning on buying a new rental property for approximately $550K
Use $150K of the $262K as a down payment on the new property and taking out a $400K mortgage for the difference
Use the remaining $112K for my daughter’s college fund.
I plan on keeping this rental property for 3-4 years and then either sell it or convert it over to my primary residence when I retire (I should be much lower income tax bracket then).
I realize, if the capital gain is allowed to be deferred, tax on the deferral will be due when I sell or make the conversion to my personal residence.
So my question is:
Does it make financial sense to pay the $18K tax now or do a 1031 exchange? Am I even eligible for a 1031 exchange due to keeping the $112K?
Thanks in advance
Eric
