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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3743
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I sold an investment property in 2003 and used the 1031 process

Resolved Question:

I sold an investment property in 2003 and used the 1031 process in 2004 to purchase a townhouse for investment purposes. My tenant has moved and I am looking to sell or continue renting the property based on my tax liability.
The condo I sold in 2003 resulted in a capital gain of $122,000. I purchased the townhouse in 2004 for $237,000.

Two Questions:

a) What is my tax liability if I sell the townhouse this year (2013) for $257,000?
b) If I sell my primary residence in Wintergreen this year and move into the townhouse, making it my primary residence, will I have the same tax liability when I sell the townhouse in 2014?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi, I can help with this ...

NPVAdvisor :

In a 1031 exchange, your essentially rolling (deferring) the gain ... another way of saying that, is the the gain (in a buying up situation such as yours) of the original property follows you into the subseqyent property ... so ...

NPVAdvisor :

You had no ACTUAL capital gains tax right?

Customer:

Correct, I paid no capital gain from the sale of the original property- Condo.

NPVAdvisor :

If you rolled everything in, then you will simply sibtract the sales price of the current property from the basis that followed you for the original investment property

NPVAdvisor :

257,000 minus original investment in the condo you sold in 2003 UNLESS you do another 1031

NPVAdvisor :

On the second question ...

Customer:

I did pay an inheritance tax on the property when I took possesion in 1994.

NPVAdvisor :

state inheritance tax?

NPVAdvisor :

OK your basis, if you inherited was the fair market value of the property on the date of death of the person that left it to you

NPVAdvisor :

That's called the "step-up in basis" at death

Customer:

July 1994

NPVAdvisor :

when you sell your primary residence (as long as you've been in it for 2 out of the last five years, there'll be no capital gains there)

Customer:

Which 5 year period are you referring to?

Customer:

Another piece of information.....I sold the condo for $225,000 and purchased the townhouse for $237,000.

NPVAdvisor :

OKI, when you sell your PRIMARY RESIDENCE there is no capital gains tax (more exactlu, 250,000 of gain is excluded for single and 500,000 for those married filing jointly)

NPVAdvisor :

the way IRS teswts that (whether it's your primary residence or not) is if you have lived in that home for any 24 mnths out of the last five years ... (from the time you sell)

NPVAdvisor :

Again, if you simply sell in the investment property it's sales price minus ORIGINAL basis ... what you originally paid for that first property (or in your case it sounds like the basis is the FMV on the date of death of the person who left it to you'

Customer:

Sorry, I am just now reading all the information you send me. It appears in a small 2 line area and I didn't realize there was more info. Just a minute please. Ken

NPVAdvisor :

no problem

NPVAdvisor :

still with me?

Customer:

OK this is what I understand from your answer. When I sell my primary residence, since I am single, as long as the capital gain is less than $250K, there will be no tax on the gain -- I anticipate a gain of $110K.

NPVAdvisor :

CUrrect

NPVAdvisor :

sorry "correct"

Customer:

On the 1st question - The basis of the condo in 1994 would be in the area of $125,000. Then taking the sales price of the townhouse -- say $257,000 minus the original basis ($125,000) the difference is $132,000. Is this the amount that I am responsible for on taxes?

NPVAdvisor :

that's right

NPVAdvisor :

you simply carried that basis into the new property

Customer:

Thanks, where will this dollar amount calculation appear on my 1040 tax sheet? What additional forms will I fill out? Additional schedule?

NPVAdvisor :

It will go from schedule d to your 1040 (Schedule D (capital gain and loss)

NPVAdvisor :

hang on a sec

NPVAdvisor :

this page has the schedul D and it's instructions

Customer:

OK, another question please. The value (basis) on the condo can be determined, I assume, by the value I provided in 1994 when I paid inheritance tax. Correct? Otherwise, how do I research the value of the condo in 1994? Are there sales records available for me to research or do I go thru a real estate agent?

NPVAdvisor :

Also, this form is the original form that feed into the schedule d

NPVAdvisor :

4797 to scheule D to 1040

NPVAdvisor :

thats perfect

NPVAdvisor :

if you think that the valuation was lower (for inheritance tax calculation) than the actual fair market, a real estate agen or appraiser can pull up historical sales of properties at that time

Customer:

Thanks, XXXXX able to print our conversation out so I can refer to it later?

NPVAdvisor :

you can also go to the county tax office to look up sales of comparable proprties at that time

NPVAdvisor :

You can bookmarket and come back for as long as you need ... that way the links to the IRS forms will still be there

NPVAdvisor :

but yes you should be able to copy, paste into a word document and prnt, as well

NPVAdvisor :

And I think you should also be able just to go "file," "print" from your browser, but if you bookmark (make this page a favorite in your browser) you can come back and get the fomrs and print them whenever you need them)

NPVAdvisor :



If this HAS given you enough information, I would appreciate either an “accept” or a feedback rating of 3 (OK) or better. That's the only way they will pay us here. HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.



NPVAdvisor :

still with me?

NPVAdvisor :

other questions?

NPVAdvisor :

.

Customer:

Yes, Thanks, XXXXX XXXXX able to do both book mark and copy / paste

NPVAdvisor :

Excellent

NPVAdvisor :

Can I help with anything else on this today?

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3743
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 7 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.


Thanks so much for the rating.

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To ask for me again, just go here: NPVAdvisor



And enter your question in the question box



Thanks again,

Lane




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