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Investment Property Sale

2,510 Views | 9 Replies | Last: 4 yr ago by kag00
agcrock2005
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AG
My wife and I are selling our former home in Austin (if it hadn't had lot of foundation issues in last few years it would be a long term hold, but we want out now) and should net about $100K on the deal. The only debt we have is mortgage that's about half of what house is worth, and our two vehicles (about $80K). I'd like to pay off vehicles but don't want to pay taxes on the $100K. May I do a 1031 exchange of that money into our current home mortgage, then refi our house and take out that $100K and pay off the vehicles? Thank you for your help.
Ed Carter
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AG
No. Not a 1031 expert but I know for a fact you cannot use 1031 money to pay towards a mortgage on another property
agcrock2005
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AG
Quote:

you cannot use 1031 money to pay towards a mortgage on another property
Isn't that the purpose of a 1031? I work in commercial real estate and people sell their properties and call us asking to help them find another property to exchange into. I just don't know how it works in residential. Thanks for your response.
dallasiteinsa02
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Did you live there 2 of the last five years? Or Do you have a detailed accounting of the repairs or investments you made in the property?
agcrock2005
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AG
Haven't lived there in 6 years, and our management (previous) company kept all the accounting, including repairs, up to date.
one MEEN Ag
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AG
agcrock2005 said:

My wife and I are selling our former home in Austin (if it hadn't had lot of foundation issues in last few years it would be a long term hold, but we want out now) and should net about $100K on the deal. The only debt we have is mortgage that's about half of what house is worth, and our two vehicles (about $80K). I'd like to pay off vehicles but don't want to pay taxes on the $100K. May I do a 1031 exchange of that money into our current home mortgage, then refi our house and take out that $100K and pay off the vehicles? Thank you for your help.
Okay so important detail here is that your former home is now a rental and not your primary residence. So you can't just walk away with the capital gains tax free.

I thought for 1031 exchanges you have to do a like kind exchange within either 6 or 9 months of original house sale. Don't know the scrutiny if refinancing your current, already bought home counts as buying a new property.
Ed Carter
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AG
So of the customers that have approached you and asked you to find a new property that they can do an exchange into, have any of those ever used those 1031 funds to pay down their current mortgage? Or have they used those funds to go out and find a new, like kind, property?

You asked if you can sell your rental property, take the proceeds tax free (do a 1031)and use those funds to pay down your current home mortgage correct? Unless there is something I'm not aware of no you are not allowed to do that. If I'm wrong I would love for someone to come and correct me because if that's the case I will sell off a couple rental properties tomorrow
dallasiteinsa02
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Could you purchase a property that you know would be an easy cash out refi? Take a cash out refi apply it to your mortgage and then sell the property. Might be possible but the fees, commissions, and risk may not be worth just taking the tax hit. Just thinking out loud here.
humperdink
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AG
Can't do 1031 on primary residence. Has to be like kind investment property.

Exchange companies are very helpful but always state discuss with your tax advisor in advance, which is what you should do.
agcrock2005
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AG
Thanks. Have call into them. Appreciate the feedback. Idea sounded awesome until you all crapped on it. Haha.
kag00
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AG
I am in an almost identical situation and I keep getting to "no" because it is not a like kind reinvestment. I am still working on a good way to minimize the taxes of a sale. Likely will reinvest into a different property.
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