Marissa has a rental property that has appreciated a lot since she bought it 30 years ago. This is her primary investment asset. She has enough other income from employment to qualify for a new mortgage of up to $500,000, if she needs in the future. She paid $200,000, and it is now worth $1,100,000 according to a recent appraisal. She has taken all the depreciation possible ($150,000), so her adjusted basis is just the $50,000 allocated to the land at time of purchase. IF she sells the property for $1,100,000 cash she will net about $1,050,000 after paying the costs of sale, so she will have a huge Long-Term Capital Gains tax probably about $200,000!

So she would only end up with about $850,000 cash after paying the IRS. She is thinking about buying a vacation-rental property on the beach in Hawaii, which would cost about $1,400,000. A prospective Buyer has offered to buy the property for all cash. What can you suggest to Marissa?

1. Sell for cash now! Take the net cash, and buy the Hawaii property!
2. Use a Section 1031 Exchange to sell this property and buy the Hawaii property.
3. Sell this on an installment sale, with $400,000 as a down payment, and $100,000 annual payments until the balance is paid off.
4. Just buy a place in Costa Rica, where you could get a house on the beach for half of what it would sell for in Hawaii!