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1031 Exchange Question
Posted on 5/26/23 at 8:39 pm
Posted on 5/26/23 at 8:39 pm
I have never done this. And despite researching I cannot find clear information on some items and I don't want to mess this up.
I am closing a sale next week of a home for (easy math purposes) $200k. I originally bought it for $125k (so, $75k gain). My CPA estimates the total gains tax would be about $17k at tax time. The total amount I will receive at closing is $110k as I have paid off some more principle in the time owning it.
If I do a 1031, does the intermediary collect the full $110k or only the $75k gain?
I am closing a sale next week of a home for (easy math purposes) $200k. I originally bought it for $125k (so, $75k gain). My CPA estimates the total gains tax would be about $17k at tax time. The total amount I will receive at closing is $110k as I have paid off some more principle in the time owning it.
If I do a 1031, does the intermediary collect the full $110k or only the $75k gain?
This post was edited on 5/26/23 at 8:41 pm
1
Posted on 5/26/23 at 8:43 pm to rpg37
The closing attorney can 1031 any amount you want of the 110k. Should be a flat fee for the paperwork.
Also, make sure the closing attorney can actually do a 1031 exchange. It’s actually less than you realize.
Also, make sure the closing attorney can actually do a 1031 exchange. It’s actually less than you realize.
Posted on 5/26/23 at 8:50 pm to MrJimBeam
quote:
The closing attorney can 1031 any amount you want of the 110k. Should be a flat fee for the paperwork.
Also, make sure the closing attorney can actually do a 1031 exchange. It’s actually less than you realize.
Yes sir, I have already started the process of working with the intermediary for Wednesday. But, from the taxable side of things, if I complete a traditional 1031, is it the gain or the full amount he is supposed to take? This is where I get very lost.
Posted on 5/27/23 at 10:03 pm to MrJimBeam
I guess following up...what do I have to spend to avoid have penalties or fees or is taxable? Do I have to use the entire amount or the just the gain? If I buy a slightly cheaper home what happens then?
Posted on 5/28/23 at 6:53 am to rpg37
To my knowledge if you spend it all you defer all taxes. But you don’t have to spend it all. I am assuming and someone can correct me if wrong, but if you spent half the gain amount then you’d owe half the 17K tax bill.
Posted on 5/28/23 at 8:45 am to rpg37
You can 1031 any amount to defer taxes. If you don’t use it all, it’ll just come back to you as gains. The fee will be there regardless so if you don’t use it there’s no penalty. Check with title attorney but it may be the same cost to 1031 the entire amount vs half. If so, do the whole amount and any unused money just comes back to you as the original taxable gain. This is how it was explained to me on my recent one so correct me if I’m wrong anyone else here.
ETA: Seems I’m in agreement with poster above me.
ETA: Seems I’m in agreement with poster above me.
This post was edited on 5/28/23 at 8:46 am
Posted on 5/28/23 at 11:29 am to MrJimBeam
This makes more sense to me having been studying daily this week. Can anyone explain what happens if I buy a cheaper house? I’m looking at one that would rent better than the current sale but it’s about $20k cheaper.
Posted on 5/28/23 at 11:34 am to rpg37
The title company holds all 1031 funds you plan to use. If you end up not using it, they cut you a check for the remainder and you are taxed on that remainder for this years taxes.
Posted on 5/28/23 at 4:55 pm to rpg37
quote:
This makes more sense to me having been studying daily this week. Can anyone explain what happens if I buy a cheaper house? I’m looking at one that would rent better than the current sale but it’s about $20k cheaper.
Can't 1031 into cheaper properties without getting hit by the tax man.
That said, if its only 20k cheaper that won't be much of a tax bill.
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