Hello, Thank you for using justanswer. I can assist you with your questions today.
Sorry to hear of your situation. But no, you won't qualify for the 1031 exchange because one of the criteria for the 1031 exchange is that you do not receive any cash. All the proceeds would have to be used to repurchase another like kind property in order to defer all the capital gains.
Having said that it would still be an option if to defer part of the gain. Meaning that you can receive cash you will just have to pay tax on the amount you receive. "If cash or other proceeds that are not like-kind property are received at the conclusion of the exchange, the transaction will still qualify as a like-kind exchange. Gain may be taxable, but only to the extent of the proceeds that are not like-kind property." - http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031
So no you cannot use the 1031 exchange to exclude 100% of the gain but you can use it exclude a portion of the gain (up to the extent that you actually invest in the replacement property) (cash received will be subject to tax)
I hope this provides the clarity you were looking for, please let me know if you have any further questions.
By cash, you're saying the cash to pay my ex and the bank? The building I'm wanting to buy is rental property now so why wouldn't that be like kind?
By cash, you're saying the money I would be giving my ex and the bank would be considered cash? The building I want to buy is rental property now so why wouldn't it be considered like kind?
Original expert here.
By cash, you're saying the cash to pay my ex and the bank? - yes exactly. The amount of cash proceeds you receive and give to your ex wife or the bank to pay down debt would not be used to reinvest in a like kind property, thus a portion of the proceeds received would be subject to taxation and not deferred through the 1031 exchange.
The building I'm wanting to buy is rental property now so why wouldn't that be like kind? - Yes it most likely would qualify.
The issue you have, as outlined above, is that all the cash proceeds must be used to qualify for 100% gain deferral should it exist. For example if you receive 100K in cash and give 50K to your ex wife and the bank to pay down debt, only 50% of any potential gain could be deferred. The remainder would be subject to taxation.
Make sense? Please let me know if you have any further questions.