Weird 1031 Question

[endofera]

If you can sell Property C quickly, it looks like you qualify for the 2 of 5 years rule to avoid tax on $500,000 of the gain.  To avoid capital gains on the sale of a main residence, you need to have lived in it 2 of the last 5 years and in the last 5 years, you lived in the house for 2 years: June 2012 - June 2014.  This is probably simpler than the 1031.


Otherwise, there is a build-to-suit 1031 which you may qualify for. 

[Bonny]

May 2, 2017 12:32:43 GMT -5 alwaysbeoptimizing said:

May 1, 2017 20:02:35 GMT -5 endofera said:

If you can sell Property C quickly, it looks like you qualify for the 2 of 5 years rule to avoid tax on $500,000 of the gain.  To avoid capital gains on the sale of a main residence, you need to have lived in it 2 of the last 5 years and in the last 5 years, you lived in the house for 2 years: June 2012 - June 2014.  This is probably simpler than the 1031.


Otherwise, there is a build-to-suit 1031 which you may qualify for. 

thanks.  and the 2 of 5 just reduces, not eliminates it.  I think we'll make more in gain by milking it another year than selling it today and paying a reduced tax.

We lived there for 2008,9,10,11,12,13 and half of 14 so 6.5 years of the last 9 so we'd get a reduction in capital gain of say 70K, which would be nice, but i'd rather have it run.

Also, I am learning that 1031's have to be for the same value (mostly).  the house we'd sell is selling for 1.4M, but our new ADU is only going to cost 450K to build, so maybe it makes sense to just take our lumps, cut the taxman a check and then start over with the new ADU.

But you get to exclude $500k of your $600k gain. That's not bad. The kicker is still the recapture of the depreciation. I'm also guessing that you have a bunch of "carry forwards" that you haven't been able to use due to your high income. You get to use them when you sell ANY of your properties. Last year we used them to off-set a sale of a $760k property with about a $400k gain and paid NO Fed tax and only $3,500 in State.

And keep in mind for 1031s you can exchange for a cheaper property but you have to pay tax on the "boot". For us that made more sense than paying for a more expensive property.

[Bonny]

May 12, 2017 10:26:03 GMT -5 alwaysbeoptimizing said:

May 12, 2017 10:18:46 GMT -5 Bonny said:

But you get to exclude $500k of your $600k gain. That's not bad. The kicker is still the recapture of the depreciation. I'm also guessing that you have a bunch of "carry forwards" that you haven't been able to use due to your high income. You get to use them when you sell ANY of your properties. Last year we used them to off-set a sale of a $760k property with about a $400k gain and paid NO Fed tax and only $3,500 in State.

And keep in mind for 1031s you can exchange for a cheaper property but you have to pay tax on the "boot". For us that made more sense than paying for a more expensive property.

thanks!  i think the rule is now that I can apportion the gain as a percentage of the years we had it as primary if we lived there 2 of the last 5 years.  we might go past that.

I will have a good amount of excluded depreciation that I can claw back.  I expect we'll do this simpler and just pay whatever tax we have to (mostly LT cap gains) and hopefully the deprectiation disallowed in previous years mostly offsets the depreciation recapture at 43%.

i really don't want ot sell it, but we'll see

Talk to your CPA. If you acquired it as a primary and then converted to rental I do not believe you have to bifurcate the gain. It's only when you acquired as a rental as of Jan 1 2009 and then convert to a primary that you bifurcate the gain. Still have to do the depreciation recapture though.

[Bonny]

May 12, 2017 11:35:21 GMT -5 alwaysbeoptimizing said:

May 12, 2017 10:44:20 GMT -5 Bonny said:

Talk to your CPA. If you acquired it as a primary and then converted to rental I do not believe you have to bifurcate the gain. It's only when you acquired as a rental as of Jan 1 2009 and then convert to a primary that you bifurcate the gain. Still have to do the depreciation recapture though.

cool, will do. we bought it as our primary residence in 2007 and converted to rental service in 2014

And just to clarify because I don't think I wrote was clear. Any rental that was purchased as a rental and was subsequently converted to a primary will have to bifurcate the gain from 1/1/2009. It doesn't matter when the property was purchased.

So the moral of the story is always buy as a primary....until the tax laws change again!