Selling Your Property, 1031 Tax Exchanges And More

After a period of service as a rental property, landlords can decide to sell their rental. Nesbitt Realty is a full service brokerage and we have successfully and quickly sold many rental properties at best market value for our former landlord clients in Northern Virginia.

If you decide you would like to sell your rental, Connect with us and we'll start by preparing a comparative market analysis to help figure out what your property will probably bring if sold. We'll also prepare estimated proceeds so you know how much you'll actually take away from the settlement.

What is a 1031 Tax Exchange and how can it benefit me?

A 1031 Tax Exchange is usually of greatest benefit to property owners in Northern Virginia who have owned rental for a longer period of time (more than ten years). Thanks to IRC Section 1031, a properly structured 1031 exchange allows a rental investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

To understand the powerful protection a 1031 exchange offers, consider the following examples:

1. An investor has a $100,000 capital gain and incurs a tax liability of approximately $35,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $65,000 remains to reinvest in another property.
   Assuming a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a $260,000 new property.
2. If the same landlord chose to exchange, however, he or she would be able to reinvest the entire $100,000 of equity in the purchase of $400,000 in real estate, assuming the same down payment and loan-to-value ratios.

As the above example shows, exchanges shelter rental investors from capital gain taxes as well as facilitating significant portfolio growth and increased return on investment. In order to access the full potential of these benefits, it is critical to have a comprehensive knowledge of the exchange process and the IRC. For instance, an accurate understanding of the key term “like-kind” can uncover opportunities that might have otherwise been overlooked.

What is a short-sale?

A short-sale happens when the seller sells a property for less than what is owed on the property. In the past, because of market contractions, some of our landlord clients have found themselves in an untenable situation with regards to their property. In those cases the best way out was often a short sale. Quite frankly, due to market expansion and inflation, this has not been much of a concern lately.

Conversely, if you need it, members of our staff have CPDE (certified distressed property expert) training. We can explain to you the consequences of a short-sale help you decide if that choice is best for you and your property.