Author Topic: creative way to avoid depreciation recapture and cap gains on sale of rental  (Read 253 times)

kenmoremmm

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i co-own a townhouse with a friend (bad, i know)
purchase price: 373k
repairs/upgrades as a rental: 10k
current estimated sale value: 650k

it has been a full time rental for the past 3.5 years (i know, i just missed the 2/5 window, but the timing wasn't right and there were other complications i don't need to go into)

i don't have a desire to 1031 my half of the proceeds into something else as it would have to be a long-distance rental for me given my market's current condition and that's not something that appeals to me.

however, my thought is that my friend and i could sell it, then 1031 into a place in my friend's area. he would rent it out for a year, then move into it as his primary residence (for at least 5 years to qualify for the 5/8 rule under the new tax code). then, we would do a cash-out refi for my half of the original proceeds from the sale of the townhouse, give me the cash, do a quit-claim on the deed, and go our separate ways.

doable? headaches? legal?

i would love to hear some opinions on the matter.

alternatively, if the idea to use both our proceeds doesn't work, can i at least verify that my friend will be able to 1031 his half of the proceeds and then wait 12 months before moving into it as a primary?

thanks!

Rocketman

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This is big enough to get professional CPA help. FInd one that does a lot of like kind exchanges. There are many pitfalls in that part of the tax code.