• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

capital gains clarification

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

TrustUser

Senior Member
What is the name of your state (only U.S. law)? california

i currently have a long-term loss that i am deducting 3000 a year.

i have a property that i may sell that would have a gain that is over and above the loss that i have.

can i do a 1031 exchange on the property, and leave my current loss on my tax schedule ?

or would i first have to subtract the loss from the gain, and then just do a 1031 exchange on the excess gain ?
 


AdjunctFL

Member
What is the name of your state (only U.S. law)? california

i currently have a long-term loss that i am deducting 3000 a year.

i have a property that i may sell that would have a gain that is over and above the loss that i have.

can i do a 1031 exchange on the property, and leave my current loss on my tax schedule ?

or would i first have to subtract the loss from the gain, and then just do a 1031 exchange on the excess gain ?
If the property is business or investment property that qualifies for a like kind exchange (e.g., it's not personal use property) you can do a Sec. 1031 exchange and not use any of your capital loss carry forward.

You indicate you have property that you "may sell". If you sell it and don't use an Exchange Facilitator to hold the proceeds, or don't do an actual "swap" of properties, it's not a Sec. 1031 gain, and the gain would be taxable.

On the other hand, why not sell the property, report the gain, use up the capital loss and purchase replacement investment or business property. That way you will have a higher basis for depreciation in the new property.
 

TrustUser

Senior Member
it is like kind, so i do qualify for a 1031

not really crazy about going thru the 1031 process - have never done so, as of yet

if i do your last option, and report the gain - wont i have to pay a capital gains tax that year on that gain ?

even after subtracting the loss, my gain may be over 100K

in either case (1031 or not), i will be buying another investment property
 

AdjunctFL

Member
it is like kind, so i do qualify for a 1031

if i do your last option, and report the gain - wont i have to pay a capital gains tax that year on that gain ?

even after subtracting the loss, my gain may be over 100K
Yes, you will need to pay tax on the gain to the extent it exceeds any remaining capital loss carryover.

Advantage of doing so: You get the step up in basis at no tax to the extent of your carryover, and capital gains rates and the depreciation as an ordinary deduction (under most cases.)
Disadvantage of doing so: The capital gains taxes are due up front.

It's a decision you need to analyze and determine what is best for you.
 

LdiJ

Senior Member
Yes, you will need to pay tax on the gain to the extent it exceeds any remaining capital loss carryover.

Advantage of doing so: You get the step up in basis at no tax to the extent of your carryover, and capital gains rates and the depreciation as an ordinary deduction (under most cases.)
Disadvantage of doing so: The capital gains taxes are due up front.

It's a decision you need to analyze and determine what is best for you.
Do not forget depreciation recapture. That will be at ordinary income tax rates.
 

FlyingRon

Senior Member
Do not forget depreciation recapture. That will be at ordinary income tax rates.
At the current time, it's actually taxed at it's own special "recapture rate" of 25% (but it is higher than the capital gains rate).
 

TrustUser

Senior Member
anything i buy from here on out is expected to be a lifetime investment

so i personally would not be able to use an increased basis, and lower my tax on a future sale

and my beneficiaries would get a new basis, irregardless of what my basis is

dont know if this changes any advice or suggestions, but i thought i would toss it out there
 

LdiJ

Senior Member
anything i buy from here on out is expected to be a lifetime investment

so i personally would not be able to use an increased basis, and lower my tax on a future sale

and my beneficiaries would get a new basis, irregardless of what my basis is

dont know if this changes any advice or suggestions, but i thought i would toss it out there
Then maybe the better question might be...Why are you considering selling the property you have now?
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top