Capital gains on earnings from sell of an investment property

[Thomas Witchard]

Hi, need some help.  My wife and I just sold an investment property we owned.  We were not aware that discussions for a 1031 exchange was supposed to happen prior to closing on the property.  This said the earnings from the sell will come in our name.  Is there anyway to do the 1031 exchange after the fact?  If not what can we do at this point to avoid capital gains?  Any help where this is concern would be much appreciated.

[Clayton Mobley]

@Thomas Witchard Unfortunately, if you receive proceeds from the sale of a property the 1031 is void even if you had started the process prior to selling. That's one reason (other than it being a legal requirement, of course) that you need a Qualified Intermediary on your team before you start the process - they take delivery of the proceeds to keep them 'clean', which keeps you from looking like you're trying to have your cake and eat it too. Basically, once the money touches your metaphorical hands, that's it for the 1031, sorry. 

One possible ray of light would be if you previously occupied this property as a primary residence. If you lived in it for 24 months (cumulatively) out of the past 60, then you can use the Sec 121 exclusion to exempt some of the gains from capital gains tax. The max for you as a married couple is $500k. Now, if you used to live there and then rented it out in subsequent years, it's a mixed-use property, which means there's some math involved with how much gain you can shelter, so you'd need to speak to a reliable CPA about specifics.