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Is it feasible to do a 1031 tax exchange if you are selling…

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Is it feasible to...

Is it feasible to do a 1031 tax exchange if you are selling a property for 3.8 million and buying replacement property for only 1.1 million i purchased the property for 3.1 million and have depreciation of 750,000

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The exchange co. says i would be on the hook for 2.7 million

Submitted: 3 months ago.Category: Tax
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3/22/2018
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 3 months ago
PDtax
PDtax, Certified Public Accountant (CPA)
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Hi from Just Answer. I'mCustomer and can assist.

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Tax Professional: PDtax, Certified Public Accountant (CPA) replied 3 months ago

They are likely correct. you aren't buying a replacement property that is at least as much as the prior one. Yours will be a cash out, which is 'boot' for tax purposes. Boot is typically taxable. That includes mortgage boot, which would be any payoff of existing debt. Even assumption of existing mortgage is considered boot.

Sorry I don't have a better result for you, but IRS takes a dim view of cash-outs like this.

Thanks for asking at Just Answer. Positive feedback is appreciated. I'mCustomer

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Tax Professional: PDtax, Certified Public Accountant (CPA) replied 3 months ago

Your taxable gain on sale would be $700,000 in capital gain, and $750,000 in depreciation recapture, so can I ask why you would want to try this exchange? Simply buy the second property after selling the first.

You don't mention debt assumption or releases on either property, so that may be part of the deal, but the total boot received should not be taxable.

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Tax Professional: PDtax, Certified Public Accountant (CPA) replied 3 months ago

Hi again.Customerhere.

Do you need anything further? If your question has been addressed, please rate my response to close out your request.

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