I bought the property in 1979 for $40K. It was zoned R4 and was a duplex. Several years later, the city camein and did a blanket rezoning of the entire street to C-2. I shared the house/owner-occupied rental property; I lived there until 2002. It has been leased to the same tenants for 6 yrs. They want to buy it, but I don't really want to sell it. I live in California and the property is in Kentucky, so it would be a real hassle to re-lease it.
The property is now worth around $400K. I have made BIG improvements over the years, and have taken them off my taxes each year. The building has been depreciated out. I owe $185K on it.
What are the best options for me in order to not have to pay exorbitant capital gains taxes? This is my only asset. I am a retired teacher and get my monthly retirement of $2700. I have very little savings and this building has been a real godsend financially.
Would carrying "paper" on it defer the capital gains on that part of the profit? I know about the 1031 trade, but I don't understand how the equity thing works. Say I trade for a $400K income property. My monthly payments now are approx $1700 PITI. Would that change? If they did a lease/purchase option, how does that work? Of say $3000/mo rent, what is the "going %" or fair % of that rent that would go toward the purchase price? What is a good amount of time for the lease/option?