1031 Holding Period

[Ian Middleton]

I looked for the answer to this question in the various threads but could find an unequivocal response, so for the avoidance on any doubt here is my situation/question. I purchased a fixer property for all cash around 5 yrs back (costs all in of 140k and sold for 215k in TX), sold it and did a 1031 into a SFR all cash purchase just over 2 yrs back. Second property purchase price was 275k (so added some other funds to make up the total figure), and potentially looking to sell around 315k. Assuming this is the case (and excluding agents fees, costs etc) would the capital gains tax on the second property be 40k (gain since the purchase 315k-275k), or would there be some kind of recapture from the first 1031 exchange. Thank you very much in advance.

[Dave Foster]

@Ian Middleton, exactly right by @Bill B..  I'm glad he remembered to mention depreciation recapture.  That is the silent killer!!  In addition to the original profit plus the added profit from your replacement property.

Good news is that the 1031 can keep avoiding taxes even through death.  A lot of folks don't know this little tid bit - But if you die owning the property (1031ing every time you sell) you heirs get the property as if they paid market value for it on the day you die (called a step up in basis).   You don't ever pay the tax.  Your estate doesn't pay the tax.  Your heirs don't pay the tax.

Checkmate, Death and Taxes!!!