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MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2342
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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if i sell a property that was part of an exchange 2 yrs.

Resolved Question:

if i sell a property that was part of an exchange 2 yrs. ago, do i pay the original capitial gains? what about the depreciation of the original property?
Submitted: 9 years ago.
Category: Tax
Expert:  MequonCPA replied 9 years ago.


Your basis in the current property should already be adjusted for the deferred gain on the prior sale. Any depreciation recapture on the current property or the prior property will be taxed at 25% on your federal return.

Customer: replied 9 years ago.
Thank you for your response. Could you clear up what you mean by the term "basis". Also I'm a little confused about the depreciation recapture statement. Is the capital gains taxes, that I avoided by a 1031 exchange/purchase of a new property, deferred to that new property that I'm planning to sell, or do I only pay capital gains taxes on the current property values? If your answer could be in very simple laymans terms, I would really appreciate it. =) Thanks Steve !
Expert:  MequonCPA replied 9 years ago.


When you "traded" for the new property you deferred the gain on the sale of the old property. Because the gain is deferred, your basis in the property acquired is reduced by the gain that was deferred. That information should have appeared on your Form 8824 (link below)

Example old property cost 50,000 depreciation taken 20,000, fair market value 80,000 at date of trade. New property 100,000 value at trade, 5,000 depreciation taken, value today 120,000.

Your basis in the new property is 45,000. Adjusted basis in old (50,000 - 20,000) plus cash paid 20,000, less depreciation taken on new 5,000.

Sale of new property your gain is 75,000 (120,000 - 45,000) of that gain 25,000 (20,000 + 5000) is taxed as real estate depreciation recapture at 25% the balance of the gain 50,000 (75,000 - 25,000) is long term capital gain.


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