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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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If I am selling a building that has no debt us say one

Customer Question

If I am selling a building that has no debt for let us say one million dollars and I want to reinvest using a 1031 exchange for $500,000. and I take back a mortgage on the rest for 5 years, Am I obligated to pay the IRS the capital gains on the full amount of the sale.
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

For tax purposes, how you finance your investment is irrelevant. Mortgage is not taken in consideration when calculating your capital gains.

If you do 1031 exchange but only reinvest 1/2 of the proceeds you will have capital gains to report. How much it will depend on your basis (original purchase, improvements, depreciation you took an such).

Expert:  emc011075 replied 1 year ago.

For the 1031 to be completely tax free, you will have to use the entire proceeds to purchase a replacement property. If you keep some of the proceeds (receive a "boot") the proceeds will be taxable. If you replace 1M property with a 500K property, you will have 500K boot. It doesn't matter if you get a mortgage or not.

I see you read my respond. Do you have any questions? Is there anything else I can help you with today?