How To Sell Your Twin Cities Duplex Without Going Broke From Taxes

There comes a time in many of our lives when we want to slow down and simplify. For many Minneapolis and St Paul duplex owners, this decision often comes with financial complications others don’t face.

Those include the tax and depreciation recapture ramifications incurred when selling rental property. For some, the toll can be almost half of the total proceeds of the sale; a financial hit many people can’t take as they head into retirement.

Most investors are familiar with the three most common ways of exiting a long-held rental property: cashing out, carrying a contract-for-deed and doing a 1031 tax-deferred exchange.  Those options don’t appeal to everyone.

However, there is a third and less well-known way of rental property that’s something of a combination of more familiar techniques. And that’s to do a 1031 exchange into properties the seller’s heirs want to own.

Imagine being an investment property owner who has two grown children, or even grandchildren who are interested in owning real estate. For one, perhaps he or she dreams of owning a first or even a bigger home. For another, it may be a vacation property, or even an investment property themselves.

In this scenario, the duplex or investment property seller exchanges into the properties his or her children or grandchildren want to buy. He or she goes on title. Rather than paying a bank for the property, the children or grandchildren purchase the properties on a contract-for-deed from the seller.

This does several things. First, it gives the seller the opportunity to participate with loved ones in the joy of buying their property. Second, it gives the seller a continuous monthly income stream and eliminates maintenance responsibilities. Finally, it helps spread tax consequences over the years, rather than a lump sum in a single tax period.

Of course, as always, you should consult with your tax advisor and possibly estate planning attorney as to what the legal structure and ramifications to your estate plan may be.

Call me if you’re thinking of selling your Minneapolis or St Paul duplex. I’d be happy to help you come up with an exit strategy.