$cott wrote:
- quote -

Tax issues are big in this question (appropriate given today's date!).

If she is sitting on big gains in the rental property and her current
home, and she wants to cash in her chips to finance the new home, what about

d. do a 1031 exchange of her current rental property into the new home,
rent the new home out for as long as her highly paid accountant tells
her (in a written opinion letter) is necessary to qualify the 1031
exchange, then move in. At that time sell her current home. Net effect:
$250/$500k gains exclusion on sale of her current residence, if she's
met the requirements, plus suspension of the gains on her rental, and of
depreciation recapture, at least until she sells the new home (at which
time things get complicated).

This could work out to be an awful strategy depending on the specifics
though...definitely would need a specific review by a CPA or tax
attorney. [Not tax advice, closed course with stunt drivers, do not try
at home, etc etc.]

"Big picture" - regardless of tax issues - I'd also suggest the client
draw up a balance sheet to see if she actually has any net worth and if
so, where it sits. If she has all her eggs in real estate (residence +
rental) and especially, if it's in the same geographical area, that may
be an argument for looking at a way to reduce that. Weighed against tax
down-sides of doing so, of course...a rental is a perfectly valid source
of retirement income too, especially if it produces positive cash flow
and is likely to continue doing so.

-Tad

$cott wrote:
- quote -


If she sells the property she is currently living in, she can probably
avoid paying capital gains tax on it because it was her principal
residence. If she converts it to rental property, I think she'll have
to pay capital gains tax when she eventually sells. Depending on what
her cost basis is and the current value, it's something she needs to
consider.

Bob

I am looking to gather as much opinion for a client that undecided on
what to do relative to her intent to build a new home. She currently
owns two properties (with mortgages; one she lives in and the other she
rents out) and doesn't know if she should:

a. Rent out the two units and finance the construction of her new
home.
b. Sell both of the existing properties to fund (in cash) the
construction of her new home.
c. Sell one of the existing properties and rent the other and finance
the construction of her new home with a larger then normal down
payment.

What would you do (and tell me why)?

Please assume that the all conditions are ideal, i.e., she can rent out
both properties for a positive cash flow, she has the werewithal to
carry the third mortgage, etc. when sharing your opinions.

Thanks for all the input in advance.

Regards,