All Create Unexpected Tax Liabilities
By now, most are well aware that capital gain tax rates are slated to increase on January 1^st if Congress takes no action to stop it and many within the real estate community are forecasting an increase in activity before year end.  Investors want to sell their properties and pay the gain while the maximum rate for individuals is 15%.  Unfortunately some of those investors may not be looking at their situation with eyes wide open.  Below we discuss three common situations facing investors and how a 1031 tax-deferred exchange can help.

The value of my property has not gone up much.

Many are now facing the realization that countless property values have decreased in the last few years and believe selling would result in minimal gain and perhaps even a loss.  While it is true that there may be minimal or no capital gain taxes due on the appreciation, many investors don't realize they must also recapture depreciation which is taxed at a much higher rate.  All depreciation taken over the years of ownership is generally recaptured at 25% regardless of your tax bracket. 

I won't net much cash so my gain is minimal.

Unfortunately your equity has nothing to do with your gain.  Equity is the amount of cash in your property after your mortgage payoff.  Your gain is the same whether you own your property free and clear or if you owe 100% of the sale price to your lender. 

I exchanged into the property I am selling now. 

When acquiring property though a 1031 exchange, you carryover the basis of your relinquished property.  When selling this property without doing another 1031 exchange, your gain is determined using your old basis and recapturing all depreciation taken on the current property as well as your old property. 

 View Depreciation Examples and 1031 Solutions