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1031 tax exchange on investment property

Discussion in 'Road Side Pub' started by MG0h3, Apr 25, 2018.

  1. MG0h3

    MG0h3 Well-Known Member Established Member

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    Anybody here have any experience with this? Any pitfalls to watch out for?

    About to unload a property that I'll have to pay capital gains on.

    Do you pay a full capital gains on the net profit (profit between sales price and adj. cost basis minus real estate fees)?

    I'll have the typical expenses for the first few months of the year as it was empty, had to make some repairs, etc. Those expenses along with the usual mortgage interest, taxes, etc. just go in the normal spot in turbo tax and reduce my adjusted gross income as usual and the capital gains tax is just based on what I mentioned above this paragraph?

    My capital gains rate is 15% on about 45k after paying commissions. Debating if I want to buy another property (smart move in my opinion) or I could get pretty close to paying off a brand new house I bought 2yrs ago if I pocket it....but I'd pay @6k in capital gains and 3% to CA.

    Escrow office already referred me to a company that processes the 1031. Says the charge is $500. Gave me some basic info about identifying the exchange property within 45 days of closing and 180 to close on the new property.

    Thanks in advance
     
  2. OETKB

    OETKB bad attitude Established Member

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    I think you have it figured out. You just need that third party to handle the exchange to keep the IRS happy, as referenced. You also need to be sure what you buy fits the definition of "like-kind" as compared to what you are exchanging.
     
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  3. MG0h3

    MG0h3 Well-Known Member Established Member

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    Yep familiar with the like kind portion.

    Is it as simple as it sounds?
     
  4. sleek98

    sleek98 Well-Known Member Established Member

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    We do atleast one a year in the family office i work at. It is as simple as it sounds. Make sure you use a qualified intermediary and make sure you hit within the date and your good to go. You have to add an extra form into your return but it’s not bad to do.

    500 sounds cheap. Last one we did was around 22k in fees.
     
  5. OETKB

    OETKB bad attitude Established Member

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    Full disclosure, I did a big 1033 exchange, no third party required, which you can only do under very limited circumstances. Doesn't sound like you can on this one. The one thing I don't know much about is vetting the third party that handles the exchange.
     
  6. MG0h3

    MG0h3 Well-Known Member Established Member

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    Damn. The escrow office gave me the company name and mentioned the 500. Maybe it's based on the prop. sales price? Only $150k townhouse. Hoping your property was sold in the millions or something!

    I'll get their number and call them tomorrow for research.

    Thanks man
     
  7. MG0h3

    MG0h3 Well-Known Member Established Member

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    Yep will do.

    Thanks man.
     
  8. HillbillyHotRod

    HillbillyHotRod Hooligan rabble rouser Established Member

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    You have 45 days from sale to name up to three properties you would exchange for, and 180 days to close on one of them.
     
  9. OETKB

    OETKB bad attitude Established Member

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    And I believe the 45 days are included in the 180 total.
     
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  10. sleek98

    sleek98 Well-Known Member Established Member

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    Yeah it was a couple million. Might have been 1% of sales price. but it was better than the 540k in tax that would have been due.
     
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  11. PhoenixM3

    PhoenixM3 Hello Kitty Slayer Premium Member Established Member

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    We did this in 2016. We sold one property in SoCal, and bought two new construction homes in Colorado. What ever price you sell your old place, you have to purchase “like property”. The value of the new property must be of equal or greater value than the house you’re selling. Good luck, it’s a sweet deal. You must meet those 45 day and 180 day deadlines or you’re hosed.
     
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  12. MG0h3

    MG0h3 Well-Known Member Established Member

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    T4 guys glad to see it worked out.

    I may just buy a bigger place for myself and rent out the current one. Then there’s no cap gains period.


    Sent from my iPhone using svtperformance.com
     
  13. BigPoppa

    BigPoppa Wut? Established Member

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  14. sleek98

    sleek98 Well-Known Member Established Member

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    Sold rental, converted personal residence to rental and purchased a new personal residence.

    If i am reading this right that would not be like kind property and would be taxable.
     
  15. HillbillyHotRod

    HillbillyHotRod Hooligan rabble rouser Established Member

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    Are you talking about renting out your personal house now and buying a new one? I so there will be capital gains on the rental at the time you sell it. I am in this position right now. I rented out my house when we moved and am planning on a 1031 exchange of that house this year. If I did not do this it would have ungodly cap gains and all the depreciation rolled back in.
     
  16. MG0h3

    MG0h3 Well-Known Member Established Member

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    Pretty sure I can buy a like kind (family residential) and move into it as a primary. Pretty sure the like kind just means the type of property-doesn't refer to whether its a rental or not. Maybe I misunderstood some of the stuff I read.

    Yes, then the current house I live in would be a rental and I'd either eat it or do another 1031 down the road.

    Big poppa Ill check out your link. Work's been killing me for the last six weeks but almost done.
     
  17. HillbillyHotRod

    HillbillyHotRod Hooligan rabble rouser Established Member

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    Like kind is rental for rental. You cannot do a exchange and then move in right away. I am not sure how long before you can move into the exchange property but not right away. It has to stay a rental property. That is unless I am not reading this correctly.
     
  18. sleek98

    sleek98 Well-Known Member Established Member

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    Incorrect. Like kind refers to how you hold the property and not what the property actaully is. Such as rental for rental, investment for investment. You will have busted your exchange and will owe back taxes, penalties and interest on the gain, it’s actaully easy for them to figure out since your giving them the road map to check.

    You can exchange a rental apartment complex in California for a piece of bare land in Kansas tax free if you rent the land after the exchange.

    2 years, of which to safe harbor yourself you have to have rented out the property for more than 14 days and not had more than 14 personal use days.
     
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  19. PhoenixM3

    PhoenixM3 Hello Kitty Slayer Premium Member Established Member

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    Remember that if you want to avoid all capital gains tax, you must buy something of equal or greater value than the property you’re relinquishing. If you bought at $200k and sold at $700K, you have to buy property/properties greater than or equal to $700K. You could buy something for $500K, but you’ll pay capital gains on $200K. This is the way I understand it.
     
  20. OETKB

    OETKB bad attitude Established Member

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    It's gray, but all my research says two years or more. Also, the IRS will be looking at your intent when you made the exchange.

    If you intended to buy your next primary residence, and didn't rent it out very long, they can "recharacterize" that transaction and you are on the hook for taxes on the gain.

    I've read cases where this happened.
     

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