Capital Gains

[Steve Sanchez]

I own 2 pieces of property in California, a condo I purchased 3 years ago and a single family home, which I purchased almost 2 years ago by refinancing my condo. I owe 140,000 on condo and 154,000 on my home, the condo is valued at 275,000 and the home at 302,000. My rent on my condo pays for the mortgage and taxes but not my association fees of $150.00. The condo is in excellent condition and the single family home is also in mint condition. My home is 5 miles from the beach in a small town in the central coast that is slowly but surely growing with potential, I have been living in this home myself for almost 2 years. What should be my next move? Sell? 1031 Exchange? Is there any way I can sell my condo and somehow avoid capital gains? Sell both properties and purchase a larger propery in a better location? Do nothing at all? Advice would be greatly appreciated! Steve

[kensmith]

Steve, you can sell your home without any capital gains if you have lived in it for the last two years.

As for the condo you could sell your house then move into the retal for 2 years and only have to pay taxes for the amount you depreciated (won't be much after 3 years). The other option is to sell the condo and do a 1031 exchange. The 1031 exchange needs to be for a rental, but it could be a rental you wouldn't mind moving into in a year or two. If you did this you could defer the taxes until you sold this new home. Talk to an accountant if you want to go this route as they are a lot of rules that come into play.

Now what your next move really should be depends on if you want to generate an income stream for the future with rentals or it was just a way to make a quick buck. The $150 is just an investment as your "after tax cash flow" is probably positive. I would probably leave the rental until I found one with better a better ROI. But if you want that bigger house I would go for it while you have all that equity avalible.

I want to add that I was an accountant in the past, but am not any longer and I would strongely suggest you talk to an accountant about your plans BEFORE doing anything. I don't have any knowledge of CA tax law and there may be CA taxes that could really change my opinions.