I really do want to help everyone hang onto their capital gains.
However, sometimes things just don't work out.
Recently, I had a client that had a rental he was selling for $410,000. He had paid 200K 3 years ago. He really wanted to get out of the landlord business, and sounded like a good candidate for a 1031 Exchange into a Tenant in Common Property. He thought the whole concept sounded wonderful.
Indeed it would have been, except for a few minor details. He had already done a 1031 exchange into his current rental property. His adjusted basis was only 49K. In addition, he had borrowed against the property and had a mortgage of 300K.
After cost of sale expenses, he only had about 90K equity. That means, he had a bit over 75% debt. There are virtually no good TIC properties that have that kind of debt to equity ratios.
My client would have had to bring about 130K in cash into the exchange to make it work. The numbers actually worked out ok if he took out an equity line on his residence, but it was not something he wanted to do.
A Private Annuity Trust didn't make sense either, as he would have had to pay too many taxes on his mortgage repayment (debt over basis) to justify the costs and benefits.
So, he is in the market to purchase yet another rental property and be a landlord for a while longer until his equity increases to the point where either capital gains saving strategy makes sense for him.
At least he knows now how to plan for his future gains.
Paula Straub
http://www.savegainstax.com
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