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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I'm doing a 1031 exchange. My basis of $128K for $310K in

Customer Question

I'm doing a 1031 exchange. My basis of $128K for $310K in exchange for 2 properties -- one for $370K and another for $127K.I know that this would be fine..but the $127K property is from my mother, who has a basis of $87K. She is not looking at doing another 1031 Exchange and will pay for the capital gain tax of ~$40K.Is that possible? What form do I fill out? How do I confirm?
Submitted: 8 months ago.
Category: Tax
Expert:  Lev replied 8 months ago.
I am not clear - who owns the property? You or your mother?What is the basis of the old property? I assume that is the basis adjusted for depreciation - correct?What is the selling price for old property and what is the purchase price for teh replacement property?.Regarding your mother who is selling capital asset - what is her other taxable income and if she receive social security benefits - please state that amount separately.
Customer: replied 8 months ago.
Selling property is $310K (purchased for $128K back in 2012; with depreciation about $132K as basis)
replacement properties (2 of them)
#1 - purchasing for $370K
#2 - purchasing for $127KThe #2 replacement property is own by my mother and she purchased it in 2013/2014 for $85K, so with depreciation ~$90K would be the basis. She does have taxable income from 2 other rental properties. She files her tax as married filing jointly with my father. He has is still working as well. They are not collecting social security or any retirement payment. Just income from work (W-2) and rental properties.
Expert:  Lev replied 8 months ago.
Sorry for delay.First of all if you sell the property for $310k and purchase the replacement property for $370k - that is more than the sale price.So - there is NO reason to have another replacement property in the first place...That actually means - you may simply purchase the property from your mother and that will not be related to section 1031..
Expert:  Lev replied 7 months ago.
In additional - it looks as you incorrectly adjusted the basis by depreciation...Depreciation reduces the basis - not other way around.So - if your mother purchased the property for $85k and claimed $5k in depreciation - her adjusted basis would be $80k.Correspondingly - if she sells the property for $127kher gain would be $127(selling price) MINUS $80(adjusted basis) = $47kThat would be taxes for your mother as long term capital gain.Regarding her actual tax liability - that is based on her total income.The long term capital gain is taxed at zero rate if otherwise it would be taxed at 15% or below.Assuming your mother is single - her 2016 15% tax bracket is for income up to $37,650So depending on her wages - a part of that long term capital gain might be not taxable and another part might be taxed at 15% (reduced rate).That $37,650 is taxable income (after all deductions).I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you will all tax related issues.

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