1031 from duplex to land?

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ohboy!
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1031 from duplex to land?

Post by ohboy! » Tue Mar 19, 2019 12:05 pm

Looking to sell my duplex for $250k. Owned it for 10 years. Not worth the potential $24k a year return at this point. It’s also out of state so a hassle to manage. Pretty confident it’s an easy sell.

Cost basis after recapture is $70k. I’m in California so I guestimate my potential taxes to be $250k - $25k sale - $70k basis = $155k * 25% =~ $38k.

Ouch.

My home in California I owe $100k at 3.875% with 14 years left. I could pay it off after tax. Though it’s not a huge debt or burden for California living.

I don’t see much opportunity to 1031 into a rental property that would be close by (easier to manage). I don’t think a vacation rental is a great investment. Though it anyone has any ideas for a rental property exchange I’d love to hear them.

Wondering if I should 1031 into some land? Or maybe a Delaware Statutory Trust?

Anyone have any ideas? My default will be to pay the taxes and put $ at home mortgage. Feels like there might be other opportunity worth comparrimg though.

birnhamwood
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Re: 1031 from duplex to land?

Post by birnhamwood » Tue Mar 19, 2019 1:01 pm

I embrace the KISS principle, and therefore like your default option. 1031 rules are complicated.

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Abe
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Re: 1031 from duplex to land?

Post by Abe » Tue Mar 19, 2019 1:16 pm

I've entertained the idea of (1031) exchanging single family rental houses I've owned for over 35 years into farm land. The biggest advantage would be deferring the capital gain tax and also less management with farm land. The problem is that farm land is so high right now, at least where I live.

In your case, you might consider owner financing your duplex. The tax situation would be a little better than selling outright. With an installment sale, you only pay tax on the amount of gain received each year so it is spread out over several years. Of course you would pay tax on the interest received as well.
Slow and steady wins the race.

riverguy
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Re: 1031 from duplex to land?

Post by riverguy » Tue Mar 19, 2019 3:42 pm

If you exchange improved property for unimproved property, you must recapture the depreciation.

Any real property you could exchange into. Oil and gas is a good one.

birnhamwood
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Re: 1031 from duplex to land?

Post by birnhamwood » Tue Mar 19, 2019 10:16 pm

I agree with Abe; good farm land is very high right now. In the corn belt, expect to pay minimally $10K per acre, and in the Mississippi Delta about $5K per acre if the land is leveled and irrigated. Unless you're a farmer yourself, you'll need a farm operator who will handle all the expenses and take 75% of the crop proceeds. It's still a good deal for the land owner. An average 1/4 section should net the owner $50K-$75K per year, 5% to 7%.

As I understood it, the OP is making 10% with his current situation. Except for the hassle, why change?

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ohboy!
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Re: 1031 from duplex to land?

Post by ohboy! » Wed Mar 20, 2019 8:19 am

$24000 is gross possible rents. After taxes, insurance, maintenance, and vacancies, it averages more like $16k. Add in a property manager and it’s less. It has appreciated quite a bit which has made it worth it, but it’s time to get out - too much hassle. I think I will just eat the taxes and pay off my home. I feel I have too much money in housing for my net worth.

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