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Capital gains on sale of income real estate

By Terry Savage on November 14, 2020 | Housing / Real Estate

I’m selling a two flat income property and trying to avoid capital gains tax. What are my options

Terry Says

Talk with your accountant. You may have improved the property over the years, and if you have the receipts they will increase your cost basis and lower your capital gains. On the other hand, if you have depreciated these rental properties over the years on your taxes, then you will now have to recapture that depreciation. This is the time to engage a good tax preparer to advise.

There is one other very sophisticated option, which is to do a 1031 Exchange — a tax term for exchanging like properties and avoiding taxes. But there are strict rules to be followed and a narrow time window to purchase the new property. Here’s an article from Investopedia describing those rules.

If you search “1031 like-kind exchange” you’ll find companies willing to help you through this process, which must be completed in 45 days. They take a fee for this service! And not all are reputable. But assuming you are in the Chicago area, here’s one that I found that passes the “broker-check” test at Finra. Here is the link to their site.

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