Capital Gain

[catfishhoward]

As TM alluded, like kind means that you're buying a investment/business property. It doesn't mean it has to be exactly the same...that is you can sell an office building and buy a trailer park if you want.

However, no way you can spin it will allow you to do a tax-deferred exchange on property that you intend to use for personal use. If you want to buy a property and use part of it for rental/business and part for personal use, you're going to have to partition it off so that none of the money from the sale of the previous is used for the personal parts. Further, you can't take any cash or personal use asset out of the sales proceedes (even if you pay tax on it). The entire amount must be rolled forward into the new property. Further, as I said earlier, you can't receive that money even temporarily, it has to remain outside your constructive possession. There are firms out there that specialize in handling such exchanges to avoid creating an immediate tax liability.

Also undrestand that unlike the personal residence capital gain exclusion which eliminates the tax on $250,000 of covered gain, the exchage we're talking about just rolls the tax liability forward into the new property. Eventually, you will have to pay it when you sell and don't do a further rollover.

Further, I hope you've been handling your rental tax issues properly as you've gone along, especially things like the depreciation deduction. That can really bite you at sales time as well. I'd recommend competent tax assistance.

Thanks for the advice, my accountant said on 1 of my rentals if I were to sell if for $100,000, taxes would be $6469.50 +/- so I might be better off pay the capital gain, it would be simpler considering it might take me 6 months or more to find land in N. Florida or I might look in S. Georgia since I can do the Land Surveying.

I’m going fishing now, be back Sunday, thanks again.

 

[Taxing Matters]

Further, you can't take any cash or personal use asset out of the sales proceedes (even if you pay tax on it). The entire amount must be rolled forward into the new property.

Actually, that you can do in a § 1031 exchange. If the property you are giving up is worth more than the property you receive in the exchange, and thus you also get cash or other property that is not like kind, you pay tax on the cash/other property portion of the deal. From the discussion of like kind exchanges in IRS Publication 544, the Service confirms just that: “If you have any recognized gain because you received money or unlike property, report it on Form 8949, Schedule D (Form 1040), or Form 4797, as applicable. See chapter 4. You may have to report the recognized gain as ordinary income from depreciation recapture. See Like-Kind Exchanges and Involuntary Conversions in chapter 3.”

Like kind exchanges have very specific rules in order to qualify the exchange for tax deferral. Find a tax lawyer or other tax professional familiar with those rules before you do one to guide you through the process to ensure it is done correctly. It's not super hard, but the details are important.