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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I sold a commercial building in July 2009, and the proceeds

Resolved Question:

I sold a commercial building in July 2009, and the proceeds of the sale paid off a buildling that was purchased to replace that building. The purchase resulted in a gain, although
the gain paid off the new building. Do I have to pay taxes on the gain?
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

Hello JA Customer,


The only way that you ever defer taxes on the sale of an investment property is when you participate in a 1031 Exchange. With a 1031 exchange you basically use the sale proceeds from the sale of one investment property to purchase another like kind investment property. A 1031 Exchange has very strict rules and must actually be handled by a qualified intermediary.


When you put your first property up for sale, the intermediary handles all the transactions from that point on. The money never touches your hands. He arranges for the new replacement property to be purchased and handles the sale and the new purchase.


If you do not handle your property exchange in this manner, then this does not constitute a 1031 exchange, and any gain you had from the sale of the first property would be fully taxable in 2009, regardless of how the sales proceeds were used.



Thank you JA Customer



Customer: replied 7 years ago.

I already knew about the 1031. I was asked to reveal sources that I had investigated.

I was not attempting a 1031 transaction. I wanted to know if the rule of reinvesting the proceeds of business property that I replaced with property to conduct the same business could be used to offset the tax gain.

Expert:  Merlo replied 7 years ago.

Hello again JA Customer,


No, unfortunately there are no provisions whatsoever that would allow you to exclude this gain from your taxable income. It does not matter that you used the proceeds to invest in or pay off another investment property. The absolute only way to have deferred the taxes on that sale would have been through a formal 1031 Exchange. If that was not used, then the gain you have from the sale is fully taxable in the year of the sale.



Thank you JA Customer



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