How much of the proceeds from the sale of the property have to be rolled into next property on exchange?

For example, paid $100,000 cash, put $10,000 into improvements and sell property for $125,000.

15k

1031's are not designed to be used for flips, more for buy n holds. Not sure what the case is here, just thought I would chime in

Question speaks to the proceeds vs capital gains and how much money I have to put towards the new property.

Does 100% of the proceeds have to move to the new property or could I only put 25% down.

Trying to have access to the maximum amount of cash while limiting by capital gains tax liability by using the exchange.

Any cash you hold out of a 1031 exchange (sometimes referred to as boot) you will pay tax on the prorated gain. Basically if you hold out 25% of the cash in your scenario, the prorated gain would be $3750 (125k-100k-10k=15k x 25%) assuming max tax rate and ACA surtax you are looking at just shy of $900.

to be fair the entire tax on the gain assuming max bracket and ACA surtax would be $3570

1031 is about taxes being deferred. You can do what you want with the sale proceeds but will be taxed if not rolled into another property or other qualifying investment.

Also keep in mind you must use a qualified 1031 intermediary. And those come with a cost. It should be factored into your analysis.

BigPuma said:

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Also keep in mind you must use a qualified 1031 intermediary. And those come with a cost. It should be factored into your analysis.

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This. 1031 is about avoiding taxes on *large* gains from longterm holds. Avoiding cap gains on $15k isn't going to be worth it. Assuming you are in the HIGHEST tax bracket, you are are only going to pay $3k in Cap Gains. Just pay it and move on.

Further, if you are selling it for $125k, then you are going to have seller closing costs, and assuming a fully loaded sale with a realtor, you are only looking at about $6-7k of gains, or $1300 in Cap Gains Tax. A 1031 intermediary is going to cost more than that...

Not always true. A family member of mine is the Texas marketer for a 1031 intermediary and their fee is $750, I believe. I know for a fact it's under $1,000.

If they are that affordable, please give me a name and contact number. Seriously. Ill be happy to meet with them. I get asked this at least a handful of times a year and the response rate varies on the intermediary I refer right now. My email is in my profile. Thanks!

Done.

wad86 said:

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1031's are not designed to be used for flips, more for buy n holds. Not sure what the case is here, just thought I would chime in

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Not necessarily true. One can do a construction 1031 exchange, which will give you six months to use the money made from the prior property to purchase and do infrastructure improvements on a new place. For instance, if you sell a piece of property for 1 million, and buy a new piece for 500,000, you could still use the additional 500,000 for real property improvements, like building a home, roads, water wells, electric, etc. Basically, anything that you can't pick up and take with you afterwards. The 1031 company can review options with you, but they will set up a construction LLC that will "take title" to the property during the 6 month period.