The deductions allowable are those items allowed as deductions by chapter 1 of the Code which are directly connected with the debt-financed property or income therefrom (including the dividends received deductions allowed by IRC 243, 244, and 245) except that: The allowable deductions are subject to the modifications provided by IRC 512(b) on computation of the unrelated business taxable income, and The depreciation deduction under IRC 167 is computed only by use of the straight-line method.

This savings could translate into a higher return on your time since if you paid back your 49,200 and only have 20k left @12% interest lets say your month cost to hold the property is not substantially less in the absence of obscene closing costs or points.Option B:This may be an investors dream cash back 45k in your hands and a property with no skin in the game "infinite return," assuming you still cash flow with 120k of leverage on the property.A tenant would be paying your mortgage, taxes, insurance, and etc while you've retained the property, received 45k non taxable proceeds from the refinance since the asset has not been sold, and potentially making some income each month if the numbers work.120k @30 year fixed 5.625% is only about 690.79 per month and taxes and insurance I'd wager (depending on state) is probably 130 more.

Consider utilizing a corporation and a 401k for matching contributions to decrease some of that taxable income.

Unrecaptured depreciation is taxable in full in the year of the sale, even if the property is sold on installments.

Are you going to include the note inside the 1031 Exchange, which sounds like you want to so that you can defer all of your taxes, or are you going to exclude the note from your 1031 Exchange, in which case it would be taxable under the installment sale rules.

Bill Gulley,If the money is not needed anytime soon, you could be looking at a situation where you are ultimately paying less.For a married couple you need to look at the fact that if they are in the 15% bracket, they can increase their tax bracket to the point any taxable income under 122k is only taxed at 15% or less.

So you get to deduct $2909 (80K/27.5) for tax purposes, giving you a taxable income of $4291.

If she no longer owns the property the income from said property is not her taxable income, it would be yours.

If you're only in the 15% tax bracket, then there will be no tax on the gain and thus taxes will not be a consideration.For a single person, the 25% tax bracket starts with taxable income of $36,250 (include the gain from the townhome in that number).

You went from winning one way (45k taxable profit) to winning 3 ways (45k nontaxable profit now, immediate cash flow, and 35k equity with a chance to ride the appreciation roller coaster).