Not sure what my tax is

[David Ellis]

Hello 1031 exchange people. I've read a bit about exchanges and I'm currently in the middle of one myself. I just have a couple questions to make sure I don't do it the wrong way. I'll explain what I'm doing and hopefully you guys can give me some advice or warnings if I'm doing something wrong.

I purchase a property in NC about 10 years ago for $86k. I had $40k left on the mortgage. I just sold that property for $85,500 and paid off the mortgage owed so I have about $39k of proceeds after closing costs. I am going to use that, along with about another $40k of cash I have on hand to purchase a property out righ, with no loan. I'm just trying to understand how my tax liability will work. Let's take an example replacement property purchased at $79k. Would I owe tax on the difference between what the property was sold for minus the replacement property price (boot) or if I'm using the entire net proceeds from the sale does that negate any tax? Does it matter that I had a mortgage on the sold property but I'm not mortgaging the new property? I just want to make sure I'm doing it in the best way. Please let me know what you think.

[Dawn Brenengen]

@David Ellis I'm not sure I understand.  If you sold it for less than you paid, why would you owe any taxes?  You would have some depreciation recapture, but would it be enough to make the 1031 viable?  I would imagine you also had some selling expenses and maybe some capital improvements over 10 years too.