Your real estate solution awaits.
Would you be willing to put off the sale of your home for 2 years in order to be able to reinvest your proceeds and defer taxes on your sale?
Here is an example of a client we are working with right now:
Our client has a highly appreciated home, wants to defer taxes on the sale of their home and still be able to claim the Section 121 exclusion.
· Client paid $198,000 for their Sammamish home in 1989.
· Client invested $143,500 in improvements over the years and has the receipts:
New Kitchen, New master bath, new roof, new guest bath, added a fence, 2 decks, created a closet in the attic off the master bedroom, added a patio off the front porch
· Client’s house value today about $1,650,000.
· If they sold it, they would likely have to pay capital gains tax of about $135,800 as follows:
Sales Price: $ 1,650,000
Cost of Sale: $ 132,000
Purchase Price: $ 198,000
Improvements: $ 143,500
Gain on Sale $1,176,500
Section 121 Excl $ 500,000 (married filing jointly)
Taxable Gain $ 676,500
Cap Gains Rate: 20%
Tax on Sale: $ 135,300
Last year they bought a home in Florida for $579,000 that they hope to retire to someday, but for now, are renting the home to cover the costs.
When they decide to retire, they plan to:
1. Move into their Florida rental house and make it their new primary residence.
2. Convert their Sammamish house into a rental property for at least 2 tax seasons.
3. After 2 years of rental, but before 3 years of rental, sell the Sammamish house using a Section 1031 exchange.
4. Claim the Section 121 exemption on the sale of the Sammamish house and use that $500k to pay off their loan on the Florida house.
5. Use the 1031 exchange on their sale to roll the remaining proceeds into a Delaware Statutory Trust so it would continue as investment property for them.
After all that, they hope to end up with:
· A Florida home free and clear of all debts;
· About a $919,000 investment in a DST (currently yielding about 5% cash on cash).
Look at the attached chart below to see an example they used to make their decision. It’s a side-by-side comparison for them showing the difference between Selling now and paying the taxes vs converting to an investment property and then exchanging into a DST in about 2 years.
Example of Sammamish client transition to DST.