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Selling rental property by LL001 (NJ) on September 19, 2017 @14:51

                              
Due to financial circumstances, considering selling my rental property but confused by the capital gains tax.

I purchased the property over 10 years ago. Still have a substantial mortgage. Property pays for itself (barely) and any additional income goes to debt, improvements or maintenance.

I've been advised that fair market value is about $200,000 more than I paid for it. I invested almost $150,000 to rehab in the 1st year.

Do you calculate capital gains on the money left over after the mortgage and other debts are paid?

If I choose to re-invest, I'd be looking at something a fraction of the value, like half the remaining money from the sale after mortgage paid (I would buy a small condo and rent it out). Would that reduce the tax burden as a 1031? Or do I have to re-invest the entire amount?

Thanks to anyone who responds.
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Re: Selling rental property by Anonymous on September 19, 2017 @22:03 [ Reply ]
You are talking about several things here. First, the amount of mortgage you have on the property now, has nothing to do with how you figure how much capital gains tax you will owe. Once you sell your property, and the cap tax is figured, you will owe what you owe, whether you have $1,000 mortgage or a $200,000 mortgage on it currently.

10 years ago, you bought the property for xxxxx, put $150,000 more into it, and started renting it out. XXXXX plus the $150,000 , less the amount you designated for the land value(which can't be depreciated) gives you your tax basis for the property. That amount , divided by 271/2 years, is the amount you have been taking as depreciation each year, for the past 10 years.

So now you go to sell the property. You take the 10 years of dep. off the original amount you started to dep. , and add back in the land value. That final figure gives you how much your property is NOW worth, according to the IRS, for figuring the cap tax. Now you sell your property for zzzzz. That sale amount less all your selling costs, is your final sale price ON PAPER. Your "final" sale amount, less your current tax basis, is what you pay the cap tax on, REGARDLESS of how much money you walked away with, after the mortgage was paid off.

The 1031 tax deferred exchange you referred to, is very complicated to do, and things have to work out just perfect to be able to do it. Someone else can go into that later for you.
Re: Selling rental property by Anonymous on September 20, 2017 @07:38 [ Reply ]
You need the services of a qualified tax consultant that specializes in rental properties. There are so many individual circumstances that can affect what would be best way to proceed with.
1031 by Anonymous on September 20, 2017 @16:18 [ Reply ]
I've used the 1031 like kind exchange twice to postpone cap gains taxes. I Paid a fee of $750 each time. It wasn't complicated for me as a specialized accountant did it for me.
Re: Selling rental property by Amanda on October 5, 2017 @03:14 [ Reply ]
have you consulted real estate professionals? My brother also faced the same queries, on someones recommendation he decided to consult a commercial real estate broker NJ once to clear out all his doubts related to the property selling. A good real estate agent will be the most important person on your team for a variety of reasons.

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