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How to best optimize funds from sale of rental property

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I did some searching and could not find a close-enough answer to my questions(s), so I could use some help from the FWF gurus.   

I hope to soon begin the process of selling my rental house in another state to the long-term (way more than 5 years) tenants. We are not using a realtor and I hope to realize about $35 - 40k over what I paid for the property back in 1999, and about $55 - 65k over what is owed on the mortgage. 

I am not a tax expert and am not that familiar with investments. My question is: What would you recommend as the best way to optimize the proceeds from the sale (most minimum tax burden, etc.)? For example, can some of the proceeds be put right into an IRA or something that would keep them from being taxed? Will that just come back to bite me later? Is there a legal way to shelter some of the proceeds (I will need some of them for making some renovations to my current home, so can't do the whole amount) somehow? 

Thank you so much for your advice!  

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Hmmm... name looks familiar.  Roll the proceeds of the sale into the purchase of another house. Profit!

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1031 Exchange. Google it.

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What was the purchase price in 1999? Reason it is important is because the property has been depreciated to about 40% of the value because of 27.5 years depreciation. So when you sell it at 35-40K more, taxes would be paid on 35-40K + depreciation recapture amount. Depending on the cost of the property this number can be high.

Strategies to save tax? have you read about 1031 exchange

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Hey, you know what? 1031 exchange.

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Hi Q! How's my sweet cow!    And I don't want another house!

No clue about 1031, so I will certainly look it up - thanks, everyone! And needdealsnow, the original purchase price was $100k (17.5 years depreciation). 

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Ack!  Suuuuuzzzzz... I was in a car accident recently.  My first serious one.  How's Sammy?  I still have your Xmas card on my fridge.

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Whaaaat! Are you okay? Please email or text/call me (looks like your number didn't make it through my last phone upgrade) so we don't gum up this topic.Sammy is a butthead but he's doing fine.

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spitfiresuz said:   Hi Q! How's my sweet cow!    And I don't want another house!

No clue about 1031, so I will certainly look it up - thanks, everyone! And needdealsnow, the original purchase price was $100k (17.5 years depreciation). 



1031 exchange is when you sell your current rental and then use the proceeds to buy another rental.

If you don't want another house then that won't work.

You'll probably owe a good $10-20k in tax on the sale.

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Isn't depreciation recapture @25% so if the depreciation is 40K on 100K purchase, 10K tax. Plus another 6K on 40K @ 15% cap gain. Try to adjust basis upwards by documenting improvements made to the home over 17 years. That will reduce profit. Other than that, you pretty much pay tax and exit landlord business profitably

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Owner finance the sale? You'd then only pay tax on the profit collected each year (plus interest collected). That would spread out your tax bill over 15-30 years.

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Is there any advantage of passing a rental property on to children after death or is a 1031 before death a better route overall?

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abbygayle65 said:   Is there any advantage of passing a rental property on to children after death or is a 1031 before death a better route overall?
  
From a tax perspective, it would be identical. In either situation, the basis of the property gets changed to market value (this is called step-up in basis in case you want to Google it).  

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KingPeter said:   
abbygayle65 said:   Is there any advantage of passing a rental property on to children after death or is a 1031 before death a better route overall?
  
From a tax perspective, it would be identical. In either situation, the basis of the property gets changed to market value (this is called step-up in basis in case you want to Google it).  
 

This is easily open to misinterpretation so I wanted to point out that 'either situation' in this response includes the owner dying. Basis does not step up to FMV because of a 1031 exchange.

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Since the owner in this case really does not favor dying, some of the other options are preferable.

Thank you so much for all the info! I was not aware of the depreciation recapture issue, so now at least I know what to be prepared for.

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