@Steve Dudeck
@Steve Dudeck
Hello Steve,
I have never done 1031 exchange but planning to do so in year or so so this is how I think it works (based on what I read so far for understanding the process and preparing for it).
Capital gains are always calculated from your the last year depreciation mark. For example, if you held property for two years and depreciated $2K every year (total $4K) your property following depreciation mark is $100K - $4K = $96K. Now if you sell it for $200K you capital gain would be $104K.
I think you won’t be to take any money out from the transaction. In another words all your down payment as well as appreciation money will go into next property since 1031 is considered tax sheltered account.
If property is paid off then only you will $200K check in your hand, otherwise you will get the check for equity and rest will go to lender from your first note. And any amount you got from the sale will go into 1031 exchange down payment. Actually to clarify, you won’t receive check directly, you will have to have 1031 attorney / settlement agent in the process who will receive check in name of you and will hold it for you, which they will use to pay down payment for the new property you are purchasing. If you take money out ( or 1031 does not go successful for some reason) settlement company will write a check to you for same amount they received and it will be subjected to tax at that year (capital gain taxes if property was held for more than one year - 15 % otherwise I believe its 20%.)
Will interested to learn more from other biggerpockets members from replies to this post.
