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Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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Exploring section 1031 exchange. Anticipating sale of investment

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Exploring section 1031 exchange. Anticipating sale of investment property with $100k LTCG. Unallowed losses to date - $41k. Depreciation recapture - $101k. Based on these #s we expect tax debt of approx $34k. What tax result if we purchase (partial) replacement investment property for $90k? Pls show calculations. Thanks

Lev :

Hi and welcome to our site!
Please the sale price of the old property.

Lev :

Please provide the sale price and the basis of the old property.


adjusted basis of old property is $215k (bought for $200k, $15k improvements and costs of sale). Sale price is expected to be about $315k.

You will need to prepare form 8824 - specifically - see part III - Realized Gain or (Loss), Recognized Gain, and Basis of Like-Kind Property Received

So far -
15 Cash received $225 ($315k-$90k)
16 FMV of like-kind property you received 90k
17 Add lines 15 and 16 $315k
18 Adjusted basis of like-kind property you gave up $114k ($215k - $101k)
19 Realized gain or (loss). Subtract line 18 from line 17 $201k
20 Enter the smaller of line 15 or line 19, but not less than zero $201k
21 Ordinary income under recapture rules $101k
22 Subtract line 21 from line 20. If zero or less, enter -0-. $100k
23 Recognized gain. Add lines 21 and 22 $201k
24 Deferred gain or (loss). Subtract line 23 from line 19. zero
25 Basis of like-kind property received. Subtract line 15 from the sum of lines 18 and 23 $90k

So far - I see no reason of doing section 1031 exchange in this situation.
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