The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchange Basics, Part 7
When you go to start a 1031 exchange, you’re essentially trying to save yourself money in taxes. That’s the bottom-line goal, but many people pursuing these deals can run into challenges along the way. Today’s landscape is more complex, and today’s rule making is more robust. The IRS has specific rules and regulations for like kind and everything else involved in a 1031 exchange.
So you want to save on taxes – but you have to know what’s involved in these deals. It’s not as simple as finding any property and doing any exchange. The like kind requirements are fairly strict. If the person doing the exchange doesn’t understand them, they’re likely to be unsuccessful in doing the deal without getting in some kind of trouble with regard to filing.
Knowing about how to do legitimate 1031 exchange deals and about the role of qualified intermediaries helps real estate holders to know how to do these valuable deals, to make sure they are in good shape when the paperwork goes through.
Question 1:
I am planning to do 1031 exchange as follows:\nselling property #1 for 625,000\nLoan balance $65,000\nsale expanses about $40,000\n\nBuying Property #2 for $610,000\nadding cash for the difference between sold and purchased prices.\n\nDo I have to pay taxes on the price difference $15,000 ( Boot ??? )
Answer:
So if you have a 625K loan balance and those expenses, and you’re buying for 610K, your second property will be greater in value than your net sale, which is good. You’ll have to exchange your net sales proceeds (625-65 = 540) you put all of the 540K into your second property, and if you take any out, you have to pay taxes on it. Other than that, you’re in good shape, because your second investment is greater.
Question 2:
Selling a property that is going to be approximately $89,000 in capital gains.
Answer:
As mentioned above, in a 1031 exchange deal, you have to buy an equal or greater amount of real estate. That’s equal or greater in terms of net sale price after sale expenses. Net sale price equals DEBT + CASH + PROFIT. Your $89,000 needs to add any debt you paid off plus all additional cash.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill can help real estate holders to get great advice on 1031 exchange deals – as a FINRA certified professional with experience in all sides of the real estate industry, she understands how to advise clients on how to start looking for qualified intermediaries, identifying like kind properties and all the rest. She also understands the people side of the business, and her goal is to help clients to be successful in the real estate world.
