Real Estate Watch – Voak Homes
So, you have a property that you’re tired of but have a lot of profit in and don’t want to pay taxes. While you can take out a loan tax-free, selling the property triggers capital gains taxes – as well as depreciation clawback (you have to pay taxes on all the depreciation write-offs you took while you owned the property). But if you can find another property to invest in, you can do a tax-deferred exchange, more commonly called a 1031 Exchange or just a 1031.
A 1031 allows you to sell one property and purchase another without paying capital gains taxes. There are lots of rules, and if you are interested, I would be happy to recommend an advisor (called an Exchange Accommodator) for you, but here are some basics:
• You cannot take possession of the proceeds of the sale. They have to go to the Accommodator.
• You have 45 days after you close your sale to identify up to three properties (or more, as long as the total value is less than 200% of the property you sold).
• The purchase of the new property must be completed within 180 days of the sale of the first property.
• You may purchase more than one property, and you have to reinvest 100% of the proceeds from the sale, or you will owe taxes on the amount not reinvested.
There is also a way to exchange an investment property for a property that you then convert into a primary residence. However, this takes some time and must be done with the help of a qualified professional.
Scott Voak, MBA – Broker
CalDRE #: 01153157
16745 W. Bernardo Dr. #200
San Diego, CA 92127