I Am Selling A Duplex In Sacramento For 500k How Much Would I Have For A 1031 After Fees ?
ByBought in 1996 for about 100k. Assuming I use a realtor to sell the place….also how much would I have if I just sold the place and kept the money (I am an unemployed recent graduate so my only income as of yet is from rents (25k a year))….also,,, I want to get the tenants out of one of the units so I can renovate it and rent it for more (or leave it vacant) , what is the best way (legal) to get them to get them out (is it legal to break the lease for rennovation or if I plan to move into the unit?) should I offer money or pay for moving expenses…how long do I have to give them ALSO—> I am planning on using the 1031 to purchase investment property in Austin TX where I can get a far better %return, the problem is that the prop. tax is high (2.75%)…is the prop tax deductable on fed income tax? ALSO…will I have to pay CA state income tax when I sell the prop in Texas?
If you can answer ANY of the question I would be greatful…
peace
3 Comments
November 6th, 2009 at 5:15 am
Gain on sale of property: If you keep the whole thing you will pay Long Term Capital Gain tax on roughly $400K. Work out Schedule D and you should get an idea of what the tax will be. Keep in mind you can lower that by improvements you made to the unit as well as any selling costs you incur. If you want to do a like-kind-exchange and realize a portion of the gain, get with an attorney to escrow. IRS is pretty strickt about Sec 1031 and if you get audited they may disqualify it.
Removing tenants: This really depends on what you listed in your lease agreement. Most courts will require landlords to provide 60 day written notice for tenants to vacate premises. Talk to your tenant and explain what you’re planning on doing and see what their response is. If it starts hostile and you want to avoid court, try with the moving expenses. If they’re still hostile then you may have to spend the $200 for eviction and loose a month in rent.
Property taxes: Fully deductible for Federal purposes. I don’t know about your situation with CA. Are you a resident of TX or CA or part resident of both? You may be able to get a deduction in Ca.
November 6th, 2009 at 9:08 am
I don’t know anything about the legalities of evicting a tenant. But I’ll say this:
If you’re planning on a §1031, go through a QI (qualified intermediary) as they specialize in §1031s. They’ll walk you through the steps.
1) Selling the property
2) Having the QI hold your funds (if you receive the cash…even if it’s for 1 day, it’s called boot, and you will be taxed as if it was a straight sale, if you have constructive control of the money (telling the person who is holding the money what to do with it), it’s called boot.
3) IDing a property within 45 days.
4) Buying the property within 180 days.
If you fail to do steps 2-4, it’s considered a straight sale.
With the §1031, your gain is deferred and the adjusted basis of your old property is carried over to the new property plus any boot that you paid for the new property.
You can find a great QI in Danville, CA (he holds classes teaching CPA’s, lawyers, real estate professionals about §1031s) and he charges about $750 for a simple §1031 because your money that he is holding. He’s earning interest on it.
November 6th, 2009 at 2:23 pm
If you plan on using an agent: $370k profit
500K x 94% = $470,000 after 6% commission
(standard commission: 3% selling agent, 3% buying agent)
-100k mortgage balance
If you plan to sell by owner: $385k profit
500K x 97% = $485,000 after 3% commission to buying agent
-100k mortgage balance
You sound like you need to speak with a loan officer with all of your questions and you need to sit and think about what it is you want out of the transaction. Someone else can’t make investment decisions for you.