Can I invest sale proceeds of rental duplex?

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I am the owner of a single-family rental house and two-family rental duplex. I want to sell the duplex and pay off a part of the outstanding balance on the mortgage that I had taken against the rental house (single family). Can I invest the sale proceeds of the rental duplex to pay down the mortgage balance without owning any tax on capital gains.

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Anaida Williams,

Capital gain taxes will have to be paid only if a profit is made on sale of the duplex, i.e., the value you receive from the sale is more than the present market value of the duplex.

Trelease

colin · Posted: Tue Mar 13, 2007 12:43 pm Post subject:

Hi Anaida,

Welcome to Mortgagefit forum.

Even if a profit is made you need not pay capital gains tax if the amount of profit made is within the allowed capital gains tax exclusion limit of $250,000.

You can read more about how this is possible from this following page - http://www.mortgagefit.com/know-how/capitalgainstax.html

Colin

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Caron

Hi Anaida,

You will have to pay capital gains tax.

You could have avoided the tax payment had it been a 1031 exchange. But using sale proceeds of the rental duplex to pay off home loan on your own rental property will not be considered as tax-deferred exchange under Internal Revenue Code 1031.

In order to make the transaction a 1031 exchange, you need to sell investment property such as rental duplex and purchase a replacement property used for the same purpose of investment. The new property should have equal or higher purchase price compared to the property sold.

Thanks,

Caron.

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