Selling Your Property, 1031 Tax Exchanges And More

In addition to property management, Nesbitt Realty is a full-service real estate brokerage serving Fairfax County

After a period of service as a rental property, real estate investors often choose to sell their rental unit. Nesbitt Realty is a full service brokerage and we have successfully and quickly sold many rental properties at best market value for our former landlord clients in Fairfax County.

If you decide you would like to sell your rental unit, Connect with us and we'll start by preparing a comparative market analysis to help predict what your rental unit will probably bring if sold. We'll also prepare estimated proceeds so you know how much you'll really net at the settlement.

What is a 1031 Tax Exchange and how can it benefit me?

A 1031 Tax Exchange is usually of greatest benefit to real estate investors in Fairfax County who have held rental for a longer period of time (more than ten years). Thanks to IRC Section 1031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new rental property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

To understand the powerful protection a 1031 exchange offers, consider the following examples:

  1. A real estate investor has a $100,000 capital gain and incurs a tax liability of approximately $35,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $65,000 remains to reinvest in another property.
    Assuming a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a $260,000 new property.
  2. If the same property owner chose to exchange, however, he or she would be able to reinvest the entire $100,000 of equity in the purchase of $400,000 in real estate, assuming the same down payment and loan-to-value ratios.

As the above example demonstrates, exchanges shelter real estate investors from capital gain taxes as well as facilitating significant portfolio growth and increased return on investment. In order to access the full potential of these benefits, it is important to have a good working knowledge of the exchange process and the IRC. For instance, an accurate understanding of the key term “like-kind” can reveal opportunities that could have otherwise been dismissed.

What is a short-sale?

A short-sale occurs when the seller sells a property for less than what is owed on the property. In the past, because of market contractions, some of our rental investor clients have found themselves in an untenable situation with regards to their property. In those cases the best way out was often a short sale. Quite frankly, due to market expansion and inflation, this has not been much of an issue lately.

But, if you need it, members of our staff have CPDE (certified distressed property expert) training. We can clarify the consequences of a short-sale help you decide if that option is right for you and your rental.

Do you want understand more about this area?

Our Guide to Real Estate is a free resource for anyone who hopes to learn more about Fairfax County and nearby areas.  The Guide to Real Estate compiles data about what has sold and what is currently listed, as well as a few compelling facts that you might not know.  Furthermore, our Guide has some assets of living in Fairfax County.  Of course, most of this is interesting for buyers and sellers, but real estate investors and renters may also find this data to be somewhat informative.