Lower Your Tax Implications When Selling Your Rental Property

There is a way to defer taxes and sell your current rental property.  It’s a legal strategy where you can reinvest the proceeds from the sale and not pay taxes on the gains.  Plus there’s no depreciation recapture.  If this sounds appealing then you should consider a 1031 exchange.

Make sure you work with someone in the local San Antonio area that has real world experience.  That means that they’ve done at least 10 or more.  You don’t want to be working with someone who hasn’t done a 1031 because they’re complicated and if you do them incorrectly then you’ll owe tax on the sale of the property.

There are qualifications and rules to follow to be able to get this tax benefit, but if executed right, a 1031 exchange will be able to help you to defer taxes.

Selling a Rental That Used To Be Your Primary Residence

In the event your primary house turned into a rental property you might be capable of using the primary residence exclusion to prevent taxes.

Now is certainly the time to meet up with your tax adviser to review the advantages and disadvantages of selling that rental property.  If you’ve lived in the house 3 out of 5 years then you could qualify.

The best way to move forward is to work with a knowledgeable real estate accountant.  A generic CPA is good but I’d recommend that you seek out an accountant that focuses on real estate.

Seller Financing Is A Great Option

If you’re looking to sell in the near future but you don’t need the cash then seller financing is a great way to lower your taxes.  You only pay tax on what you receive and by offering seller financing you’ll be receiving the proceeds in monthly installments.  This is a much better option because it spreads out the gains across multiple years thus lowering your tax bracket.

If you think you’ll need the cash at a later date then consider putting in a balloon payment on the note that you create.  Better yet you can dictate the term of the note as well.  Either way you can structure a deal that works best for your situation.

Do You Really Need To Sell It?

Have you thought about refinancing or a line of credit?  Both of these options provide you the ability to access cash but you won’t have to pay taxes on it.  I know that sounds kind of crazy but you’re not technically selling the property.

A line of credit is nothing more then debt that you can access at anytime.  Once you pull the money you’ll be charge a monthly interest.  Keep in mind that you still own the rental and hopefully you have a great tenant that will pay down the money pulled on the credit line.

A credit line is one of my favorite financial instruments.  Once you have them setup you don’t have to qualify or ask for approval when you want to use the money.  You just right a check.  This is great for those all cash home purchases.

A refi is a great strategy to for pulling cash out.  For instance, in the event you bought a property with $20k down and the total purchase price was $100k and it’s now worth $180k, it’s highly likely that you can refinance and pull out an additional $64k of cash with conventional bank financing.

This might be an excellent time to use this strategy due to the low rate of interest in today’s climate.

Don’t forget that you’ll be able to right off the interest expense in both of these scenarios.

If you’re set on selling the home then I’d recommend that you work with another investor in the San Antonio area.  Call me today and let’s grab some coffee 210-446-9253

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