Have a Tax Question? Ask a Tax Expert
I have a vacant 3 acre piece of Lake Michigan waterfront investment property in Kewaunee County, Wisconsin, with an (tax) assessed value of $168,000. I am a resident of Cook County Illinois and own a home here. I am 60 years old. With the real-estate market up north depressed right now, the property is up for sale at $132,000 and expect something in the range of $110,000. (Ultimately, I want to purchase a piece of property in Dominican Republic.) Is there a way I can get some cash for this property and donate the balance up to $168,000 using the balance as a forward tax write-off? Property basis is $20,000.
You will have to pay tax on the difference between your basis and the sales price unless you use an exchange rather than a sale.
To defer tax on an exchange you must not take possession of the cash (so an intermediary is used) and all of the rules must be closely followed. So, it is possible to buy another investment property with the proceeds but you must basically invest all of the proceeds in order to defer all of the gain.
For more information see http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031
Other than an exchange sometimes it is beneficial to use an installment sale, where not all the proceeds of the sale are received in the same year so not all the tax has to be paid in the same year.
If by donate the balance you mean a charitable contribution any amount that is less than 50% of your adjusted income (or 30% for some private foundations) is deducted in the current year and can not be a carry forward unless the donation is more than 50%/30% of your current year income, including your gain on the sale.
So, that charitable donation is possibly carried forward for up to five years when it is more than 50%/30% but can not be used after five years.
For more information see http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Charitable-Contribution-Deductions
Please let me know of any items that you need more discussion or information.