Real Estate Tax question

[gr8fl4porsche]

I am selling a 4-family flat.

3 of the last 5 years I lived in one of the units.
I moved out a little more than 2 years ago.

I believe I am going to have a 75% taxable event minus any deductions for improvement expenses.

Not really interested in 1031'ing - done with rental property.

Any ideas on avoiding capital gains?

[Wolf1]

Originally posted by gr8fl4porsche

Any ideas on avoiding capital gains?

Don't sell.......or reinvest....

[turbo6bar]

Originally posted by Wolf1
Don't sell.......or reinvest....

That's it. No way around it, well, unless you're up for a little tax evasion.
best of luck to you.

[gr8fl4porsche]

I really want out of the rental business. When you have good tenants and can keep an eye on your place its not bad. When you move across town and have to work to get the rent - you want out. My focus these days is on spending as much time as I can with my 20 month old daughter.

If I do reinvest to avoid the tax, I think I will go with small single family homes in nicer neighborhoods.

One more question,

Does reinvesting mean all the profits from the sale have to physically go into the 'like' property or can one pocket the cash and fully mortgage the new investment propery?

[motion]

All profits have to go into the new property. You can hang onto, say $20k, but you'll have to pay capital gains on that. The new property must cost more than the one you're selling, and your debt on the new property must be greater as well.

[turbo6bar]

To avoid taxation, you must trade up in debt.

For example: $100k mortgage now. New properties must have mortgage amount of $100k or greater. Anything less is considered boot and is taxed. Additionally, if you have cash proceeds from the sale, any amount removed (and into your pocket) is taxed. For example, if you have $100k of cash after the sale, you need to reinvest the same or greater into the replacement property.

I understand your frustration with rentals. Sounds like your head is on straight. I recently started screening applicants aggressively, and my problems have gone down immensely. I weigh credit score heavily, now. Of course, when it's good, it's good. When bad, it's really bad.

I invest in suburban single family rentals, and I know the tenant pool is better. My tenants tell me they passed over crappy houses at higher rent to get into my homes. It makes me feel good knowing I'm doing something right. On the other hand, suburban rentals generate less cash flow. Offset by appreciation, though. If you can find quality cash flow properties in nice areas, you should seriously consider it.
best regards, jurgen

[turbo6bar]

Ah, hell, all that typing just to find ferrariboy said the same thing.

[Steve Carlton]

You could 1031 into a SFR that by coincidence happens to be just like a dream house you'd like to have. Then, after a reasonable period (say 2 taxable years later) you could decide to convert it to your new personal residence.

You'd have to be a landlord for a while longer, but a SFR is easier to manage than a 4-plex.

Or, check how much tax you'll get hit for. In CA, it's usually about 23-26% of the profit, federal and state. Taking capital losses should help, if you have any.

[competentone]

Originally posted by gr8fl4porsche
Any ideas on avoiding capital gains?

Pay the gains now!

In a few years you might not be looking at your gains capping out at 15%. It could be a whole lot higher.

[dad911]

Be happy you are not paying ordinary income on the gain. I'm selling some land now rather than improve it and make more $$$, because after taxes (gain now, income later) it will be a wash.