Once you figure out your potential tax liability if the property is sold here is the calculation I would do:
Let’s assume for simplicity that your cost to sell outright is 5% in commissions/costs of sale, plus a tax liability of about 25% (Fed=15%, state =9.3%, depreciation recapture is 25%).
point to ponder …
1. What is the current income produced from the property after accounting for any maintenance, vacancies, prop management, and repairs ?
2. How much income can you generate from the remaining cash left after your sale.
Example:
Let’s say you net about 35,000 annually from these properties.
If you bought in ancient history your tax basis would be low. So let’s say you would net from sale 1M, minus 50K expenses/commissions, minus 250K in taxes. That leaves you with 700K. In this example, to get the same 35K annually, you would have to net about 5% from your investments. Money market/CD territory will beat that.
If you are netting 50K annually, then it would take over 7% to replace the rental income and it gets more difficult to replace that income with a conservative investment.
Plug in your numbers and see if this option makes sense … or not.
Then, compare it to owning say 930K (after commissions and 1031 fees) of property in another less-bubbly area.
Or, if you really hate taxes, try option #5: DOnate it to charity. It will save you tons on taxes.
