Sell vs.1031 Exchange: A Real Example for South Bay Apartment Owners
- Elaine Kim
- Feb 13
- 2 min read
If you own an apartment building in Hermosa Beach, Redondo Beach, or Torrance and you’re thinking about selling, the most important question isn’t price.
It’s:
What do I actually net after taxes?
Let’s walk through a realistic South Bay example.
The Scenario
Purchase price (1998): $900,000
Current value (2026): $3,200,000
Depreciation taken over time: $700,000
Mortgage balance: $600,000
Option 1: Straight Sale
Sale price: $3,200,000
Loan payoff: $600,000
Gross equity before taxes: $2,600,000
Tax Breakdown (Simplified Example)
Adjusted basis:
$900,000 – $700,000 depreciation = $200,000
Total gain:
$3,200,000 – $200,000 = $3,000,000
Tax exposure may include:
25% depreciation recapture on $700,000
20% federal capital gains
3.8% NIIT
Up to 13.3% California tax
In many cases, total tax liability could approach $800,000–$1,000,000 depending on income level.
Estimated net reinvestment capital after tax:
Approximately $1.6M–$1.8M
That’s a significant reduction in purchasing power.
Option 2: 1031 Exchange
Sale price: $3,200,000
Loan payoff:
$600,000
Equity available for exchange: $2,600,000
If structured correctly:
Taxes deferred
Full equity preserved
Purchasing power remains intact
Instead of reinvesting $1.7M, you reinvest $2.6M.
That difference materially impacts:
Asset quality
Cash flow
Diversification options
Long-term compounding
Why This Matters in the South Bay
Beach Cities multifamily has seen enormous appreciation.
But appreciation alone doesn’t mean holding forever is optimal.
If your building:
Has heavy deferred maintenance
Is fully under rent control
Requires constant management
Represents most of your net worth
Then a strategic 1031 exchange may improve both cash flow and risk structure.
The Real Question
Selling isn’t automatically smart.
Holding isn’t automatically safe.
The smart move depends on:
Your basis
Your tax exposure
Your income needs
Your estate planning goals
Your tolerance for management
A clean financial comparison changes the tone of the conversation.
For additional questions:
Companion blog here:
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