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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28275
Experience:  Taxes, Immigration, Labor Relations
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I HAVE A CLIENT WHO IS SELLING HIS PERSONAL RESIDENCE, HIS

Resolved Question:

I HAVE A CLIENT WHO IS SELLING HIS PERSONAL RESIDENCE, HIS FARMS, AND HIS POULTRY BUSINESS/EQ ETC. HE DOESN'T WANT TO PAY TAXES (OF COURSE). HE IS PLANNING TO DO A 1031 EXCHANGE. I SEPARATED THE PERSONAL RESIDENCE, NO TAX DUE, BDLGS/EQ ON DEP. FIGURED THEM, SEPARATED LAND. 1.5MILLION IS TOTAL PRICE, AFTER DEP/COST BASIS, THE AMT WAS $300,000, IS THIS AMT WHAT HE NEEDS TO 1031, I AM NOT CLEAR ON IT AS I HAVE NEVER HAD TO FIGURE FOR ONE.
Submitted: 8 years ago.
Category: Tax
Expert:  Lev replied 8 years ago.

Please clarify:

$1,500,000 - is the total selling price of the farm?

$300,000 - is the amount allocated to personal residence?

Do you have a list that itemizes farm properties? - you need it because not all properties are qualify for 1031...

Do you aware that you need third party accommodator?

Does your client has any similar property in mind for 1031 exchange?

Customer: replied 8 years ago.
1.5 MILLION TOTAL OF EVERYTHING. HOME ESTIMATED AT $100,000. CHICKEN BARNS,COMPONENTS, AND LAND EQUALS THE BALANCE. BARNS AND EQ WERE SET UP ON DEPRECIATION A FEW YEARS AGO. WHAT PROPERTIES DO NOT QUALIFY? YES I KNOW ABOUT THE THIRD PARTY INTERMEDIARY AND YES, HE HAS SIMILAR PROPERTY IN MIND AND KNOWS ABOUT THE TIME FRAME TO GET THIS DONE. PLEASE HELP! IF FIGURED LAND SEPARATELY SELLING PRICE MINUS COST AND BARNS/EQ WERE FIGURED. PROFIT OVERALL WAS ABOUT $300,000. IS THIS WHAT HE NEEDS TO 1031? THANKS
Expert:  Lev replied 8 years ago.

You need completely separate home and business - including land allocation.

If the business part is value $1.400,000 (assuming the selling price allocated to the personal home is $100,000) - that amount should be considered as the price for new property.

 

100% of the proceeds from the sale of the investment property must be reinvested into a property of like-kind or greater value.

If the cost of the replacement property - let's say $1,000,000 - that means $1.000,000/$1.400,000*100%= 71.42% of the gain would be deferred, and 38,58% of the gain will be taxable.

 

You need to complete form 8824 - http://www.irs.gov/pub/irs-pdf/f8824.pdf - you would enter all information regarding the exchange and determine if any amounts should be transferred to Schedule D or Form 4797.

 

section 1031 lists following properties as not qualified - http://www4.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00001031----000-.html

(A) stock in trade or other property held primarily for sale,
(B) stocks, bonds, or notes,
(C) other securities or evidences of indebtedness or interest,
(D) interests in a partnership,
(E) certificates of trust or beneficial interests, or
(F) choses in action
.

 

In additional you should concern that replacement properties would be "like-kind" - see some discussion here - http://www.us1031.com/qualifiedproperties.htm

 

I would suggest to start with finding a Qualified Intermediary to facilitate the 1031 Exchange Transaction.

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