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I have a question related to 1031 rental property exchange involving foreign properties

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In July 2017 I bought a rental investment property in the UK for $150,000. I have now found a buyer for my house in South Africa. The transfer will go through on 1 March 2018 and the selling price is $300,000. will this qualify for 1031 exchange given that I bought the new property BEFORE selling old one

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I would like to know how capital gains tax will be handled. I have a capital gain of +- $100,000 and I will be paying $30,000 in Capital gains tax in South Africa. How does this factor into my US taxes i.e. what is my likely tax liability (or credit) in the US given that I am in the top tax bracket here - and living in California

Submitted: 11 months ago.Category: Tax
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9/16/2017
Tax Professional: emc011075, Tax adviser replied 11 months ago
emc011075
emc011075, Tax adviser
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Satisfied Customers: 3,985
Experience: IRS licensed Enrolled Agent and tax instructor
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Hi. My name is ***** ***** I will be happy to help you.

Unfortunately this will not qualify for 1031 exchange. First your timing is off. The process must be completed within 180 (6 month). Second, you must use the proceeds from the sale of the original property to purchase a new property. If you bought a new property before you sold your original property you did not use the proceeds from the sale of the original property, you must have used your own or borrowed funds.

Assuming you owned the property for more than 1 year the capital gains will be taxed as long term capital gains at 15 or 20% (if you are in the highest 39.9% tax bracket). In addition there will be 3.8% tax on any gains over 200k (250K if you file a joint return). You will get a credit for taxes paid to South Africa.

In CA the capital gains will be taxes like ordinary income. The highest tax bracket is 13.3%.

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Tax Professional: emc011075, Tax adviser replied 11 months ago

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