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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Capital Gains and Losses
Satisfied Customers: 430
Experience:  Former IRS Revenue Agent
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Selling a house with the following data: Used as rental

Customer Question

Selling a house with the following data:
Used as rental property All along
Purchase Price (2007): $800,000
Selling price: (2016): $1,150,000
Realtor's Commission 4% = 48000
Remodeling Cost $110,000
Closing Cost $4000
Depreciation claimed for
all the years rented $234,700
Questions:
1. How much minimum possible taxes should I pay to use the cash in paying 394,000 remaining mortgage balance on that house and 295,000 for another mortgage balance on my current residential property in Kansas, and using money for investing in fixed index annuities?
2. How much minimum possible taxes should I pay if 1031 exchange tax is applied for an alternative plan of buying another rental property for about $700,000 in the same town (Walnut Creek, California?
Submitted: 8 months ago.
Category: Capital Gains and Losses
Expert:  Dr. Fiona Chen replied 8 months ago.

Dear Investment Real Estate Property,

1) If you are interested in doing in-kind exchange, it is advisable for you to look into company's which practices in the area. They follow the law and rules to the most detail and look for similar properties for clients. It is not advised to try to do the exchange on our own.

2) Because you already used the proceed for your own, other purposes, I am not sure how much of the proceeds you can still do Section 1031 exchange.

3) You need to pay tax on the (whole proceeds - all the bases, including mortgage, improvement, commission + depreciation claimed before). This should be a long-term capital gain.

4) Please find an expert who practice in the area to investigate the 1031 Exchange as soon as possible. There is a strict time frame, opening in which we can still be qualified to do this.

Please feel free to follow up. Otherwise, I am ready for your evaluation for your satisfaction with my answer to your question.

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

Expert:  Dr. Fiona Chen replied 8 months ago.

Dear Investment Property Sale,

Below are further information on Section 1031 Like-Kind Property Exchange. The window of time is in general 45 days to identify, in writing, and 180 days (including the 45 days) to complete the property transfer. The transaction needs to be completed before the due date of the tax return is due for the reporting of the house sale.

It seems that if you can still come up with 700,000 for investment. The temporary use of the money may not have an effect.

I am listing the instruction from the IRS website. When I am listing part, the whole website discussion may be interesting and informative.

The first limit is that you have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary. However, notice to your attorney, real estate agent, accountant or similar persons acting as your agent is not sufficient.

Replacement properties must be clearly described in the written identification. In the case of real estate, this means a legal description, street address or distinguishable name. Follow the IRS guidelines for the maximum number and value of properties that can be identified.

The second limit is that the replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier. The replacement property received must be substantially the same as property identified within the 45-day limit described above.

What are the time limits to complete a Section 1031 Deferred Like-Kind Exchange?

The first limit is that you have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary. However, notice to your attorney, real estate agent, accountant or similar persons acting as your agent is not sufficient.

Replacement properties must be clearly described in the written identification. In the case of real estate, this means a legal description, street address or distinguishable name. Follow the IRS guidelines for the maximum number and value of properties that can be identified.

The second limit is that the replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier. The replacement property received must be substantially the same as property identified within the 45-day limit described above.

Please feel free to follow up with questions.

Regards,

Fiona

Expert:  Dr. Fiona Chen replied 8 months ago.

Website address. (When I copy, it duplicate the same session again instead of the address. Well, a good session can worth reading for a second time.)

https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031

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