They wanted care-free time to travel and not worry about problems back home. Finding a buyer for their duplex was easy, and the sale closed with the proceeds going into escrow. About a week later, their Realtor found a five-acre parcel for sale that appeared to be in the path of eventual development and would make a perfect no-maintenance investment.
The equity from one home was transferred to Georgia with no capital gains taxes due. Norm and Sandy’s other rental had six months to go on the lease. If the tenants couldn’t or didn’t want to buy it, the property would go on the market and the process would be repeated. As you can see, the 1031 exchange is a great way to transfer equity from one area to another while deferring capital gains taxes.
The possibilities here are endless for creating win-win deals and deferring any capital gains obligation to a time when the tax bite may not be so painful. Unfortunately, paying capital gains taxes keeps many owners from selling their investment single-family homes and condos that they’ve owned for years and in which they have built up a lot of equity.
When they sold it, they had paid off their mortgage and their capital gain was tax free because it was less than the $500,000 limit for a married couple. Ron and Laura then bought a motor home with some of the proceeds of the sale and banked the rest. After closing on their home, they drove out of the title company’s parking lot in their new RV and road off into the sunset.
Many people live in a house for enough years to see it appreciate in value—sometimes to appreciate a great deal, although the amount of appreciation varies with location and economic conditions. When you sell that house, the money from the sale goes, first, to pay any existing balance on your mortgage, Realtor fees, transfer taxes, and the like.