Exchange OR pay the Change.

I was talking to one of my clients about selling his investment property and the tax implications that come along with that. For his particular situation he'd end up paying about $50,000 after everything was said and done. And since he made around $200,000 in equity while owning it he's still ahead, right? Yes and no. There is a whole boring calculation that I could get into regarding what is taxable but I'll save that for your accountant.

What IS important to know when owning a rental property is that you'll be taxed upwards of 37% in capital gains tax when selling. There are strategies to defer this tax burden, but at some point this money must be paid to our government.

After a long conversation with my client I realized I was trying to consult/convince him on how to save the most amount of money possible. Although this is technically part of my job, I started to see that he wasn't too concerned with the tax. Turns out that he would would rather pocket what was left($150,000) instead of reinvesting his money into another property (something called the 1031 exchange).

"For him" the stress and pressure to find a new replacement property was not worth saving the $50,000. He wants to enjoy this  investment gain while he is alive instead of doing what makes the best "financial sense". It might look great on a spreadsheet but the human element is something, as a real estate agent, that I am constantly trying to see first and foremost. Thank you for teaching me that sometimes happiness, simplicity and the quality of life have a far higher value than "saving for the future". Afterall my client is about to turn 70 years old and is ready to party!!