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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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If $100K is used to buy a $400K property via 1031 exchange,

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If $100K is used to buy a $400K property via 1031 exchange, and the value of the property has remained at $400K, with about $300K left on the mortgage, then what would the taxes be (generally speaking) if the owner sold the property and took out cash? What would the taxes be (generally speaking) if - instead of taking out cash - the owner sold the property and did another 1031 exchange for a property purchased at only $200K? Feel free to make any assumptions necessary to allow you to answer. I'm just looking for some basic mechanics. Thank you.
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.
Hi and welcome to Just Answer!
What would the taxes be (generally speaking) if the owner sold the property and took out cash?
The taxable gain will be $400K(selling price) - (basis).
The basis will be the adjusted basis of the original property used for section 1031 exchange plus $300K (that were not part of section 1031) Assuming the basis of original property was $30k. The gain will be $70k.
What would the taxes be (generally speaking) if - instead of taking out cash - the owner sold the property and did another 1031 exchange for a property purchased at only $200K?
No gain or loss is recognized if another section 1031 exchange is used.
The basis for a new property would be $30k + $100k=$130k.
If the value of the property has remained the same - there is no gain.
Let me know if you need any help.
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