Real Estate Investors Association of Greater Cincinnati

Author: Scott Ellsworth (1 articles found) - Clear Search

Pay Taxes or NOT? 1031 Exchanges Make It Your Choice!


What are the consequences of selling that property you have held for 15 years? You may walk away with some cash, assuming you haven’t refinanced the property. If you have refinanced the property and taken cash out, you may find yourself owing more in taxes than you get when you sell. By the time you’ve paid off the mortgage and paid all of those taxes the government wants, it could literally cost you to sell your property.

Why? Because the depreciation deduction that you take on a rental property is really just temporary—you get to write it off while you own the property, but you have to “recapture” it when you sell.

We all know that for the most part your property doesn’t really depreciate over time. Meaning it does not go down in value. We plan on the property to go up in value.

Well, since it really did not depreciate, the IRS wants you to return the deduction. So, in addition to the capital gain on the property (Sale Price less the purchase price and any improvements you did) all the depreciation has to be added back to income (or recaptured) when you sell the property.