I purchased an apartment building for $116,500. During the time I
owned it, I spent $7,500 for improvements and claimed $19,500
depreciation. I sold it for $419,500. I payed $25,170 to the real
estate agent. I payed a $4,615 transfer tax. The remaining mortgage
was payed off for $74,900. Lastly, $10,000 will be held in escrow for
some months to cover possible legal expenses. Of the roughly
$300,000 that I received, I took $85,000 to cover
personal expenses.
I plan to purchase another rental property with some or all of the
remaining $205,000. I don't understand how to determine my minimum
tax liability, given that I have taken $85,000 from the
sale of the property. If I don't touch any more of the money, ie, it
all goes toward a replacement property, what is my tax liability? If I
put all of the remaining cash toward a replacement property, and I
took out a mortgage as well, it there an optimal mortgage amount that
will minimise my taxes? How would that be calculated? Would it make
sense to try to buy a replacement property for less that $205,000 and
put the balance toward next year's horrendous tax bill? Or would that
be contrary to the purpose for pursuing a 1031 exchange? If I scrap
the 1031 exchange entirely, will the immediate pain of the huge tax
bill be less of a burden that the anxiety of not knowing how to figure
out the optimal solution? And finally, due to procrastination, time is
of the essence. |
