How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Mark Taylor Your Own Question
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2030
Experience:  Certified Public Accountant
93680669
Type Your Tax Question Here...
Mark Taylor is online now
A new question is answered every 9 seconds

If I buy a 6 years ago and construct a house now and sell it

Customer Question

If I buy a 6 years ago and construct a house now and sell it under 1031 exchange? should I buy land and re build again or buying a land would be sufficient enough? For example if I bought a land for 960000 and spent around 400000 to build a home, and sell it for 800000 on the existing property.
1) How much should I spend on the next property under 1031 exchange to avoid tax implications?
2) How can I report it as 1031 exchange?
3)In the above scenario, which are all the properties can we buy as 1031 exchange?
Submitted: 11 months ago.
Category: Tax
Expert:  Mark Taylor replied 11 months ago.

Hi, my name is Mark. I will be happy to help you with your questions.

Expert:  Mark Taylor replied 11 months ago.

Was the land purchased for $96,000? Is the $960,000 a typo?

Expert:  Mark Taylor replied 11 months ago.

It looks like you have about a $300,000 gain that you may be able to defer with a 1031 exchange.

Customer: replied 11 months ago.
It must be typo purchased the land for 96000
Expert:  Mark Taylor replied 11 months ago.

A 1031 Exchange is reported on Form 8824. Here is a link to a useful spreadsheet that will help you with your potential deferred gain.

Expert:  Mark Taylor replied 11 months ago.

https://www.efirstbank1031.com/documents/Form8824Worksheet.xls

Expert:  Mark Taylor replied 11 months ago.

Have you executed any 1031 exchanges in the past. There are specific steps that need to be taken for a 1031 exchange.

Customer: replied 11 months ago.
HI MarkFirst thing does this sale qualify for 1031 exchange? as I bought the land in 2010 for 96000 and spent around 400000 to build in 2016 and selling it in the same year? If it does not come under 1031 exchange, how can I report the taxes? Does it not come under long term capital gain? as I bough the land in 2010 and selling it now with imporvements?
Customer: replied 11 months ago.
What tax form should I use it while filing the taxes? Schedule D?
Expert:  Mark Taylor replied 11 months ago.

If you built the home in 2016. The home would be treated as a Short Term Capital Gain. For simplicity sake assume that the total gain of $300,000. 80% of the sale would be allocated to the home and 20% to the land. So the home would sell for $640,000 and there would be a short-term capital gain of $240,000. The land would sell for $160,000 and would result in a Long Term Gain of $60,000.

Expert:  Mark Taylor replied 11 months ago.

These transactions would be reported on schedule D.

Expert:  Mark Taylor replied 11 months ago.

If you are able to do a 1031 exchange would potentially could defer the gain of $300,000. Your basis in the property being sold ($496,000) would carry over to the new property. If you receive cash (also known as boot) you would recognize gain. If you are relieved of debt, this would also create a situation where a gain would be recognized.

Expert:  Mark Taylor replied 11 months ago.

I hope you found this information to be beneficial. If this answered your question please take a few moments to rate my response. A rating is needed in order for me to receive credit for helping you today. The rating bar is located at the top of the page – ranging from 1 to 5 stars. If you need me to clarify aspect of my response or if there are additional areas of the question that you would like me to consider please let me know. I would be happy to continue the discussion. It has been my pleasure helping you today.