Selling a rental property & dealing with capital gains

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MikeMak27
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Joined: Fri Jul 03, 2015 4:37 am

Selling a rental property & dealing with capital gains

Post by MikeMak27 » Tue Sep 19, 2017 9:59 pm

I'm trying to help a family member with the financial aspects of selling an investment property. They are in retirement and between 65-70 years old. At some point, the maintenance upkeep and book keeping is going to wear them down as they age in retirement. If they were to sell now, they would have approximately 290k in capital gains on the property. They are making approximately 60-70k in pensions & social security, along with 20-25k a year in profit from the investment property so they are in the 25% income tax bracket (which means 15% capital gains tax bracket $43,500 in taxes?)
They do not live beyond their means and have plenty of retirement savings in Roth, IRA's, and investment accounts along with their previously mentioned income sources. They want to will the property in a somewhat tax efficient way to their heirs, yet if they can sell with minimal capital gain taxes they would like to do so sooner. The property was bought before marriage and is only in one of their name's, so if that person were to pass away first, would the spouse inherit the capital gain in step up value and incur no capital gains if they were to sell? Or Should they:
1: continue to own the property and do the work themselves as long as their health allows, then allow a management company to do the work after they become unable to do. Then, when the owner passes away, no capital gain taxes would occur for the spouse.
2: form an S-corp to reduce liability issues in case they were to somehow get sued, get an umbrella insurance policy for their total net worth, and hire the spouse as an employee to reduce tax liability on the property's income. Then sell the property in the next year or two when they get a decent price. This would cause the capital gains taxes to get paid.
3: sell the property and do a 1031 tax exchange into a Delaware statutory trust or UPreit and get paid out the annual dividend / interest on that investment vehicle to avoid capital gains taxes. Then when the owner passes, have the spouse or heirs sell the trust / UPreit.
Mac 3 fund portfolio: 45% US small cap value (IJS, VBR), 35% Emerging Markets (IEMG, VWO, FPMAX), 20% intermediate term US treasuries (FIBAX, IEF) & Cash

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