Am I going to be taxed??

[Jim Giordani]

Hi,

My brother and I inherited a property income from my grandmother in late 2011. She lived there and we grew up there as well. It was put into a living trust with my brother as the executor. We have had it managed by a property management company...not really making a lot of money off of it because we put the proceeds into a ton of deferred maintenance.

Well we are selling it and it will close escrow on nov 1st and the selling price is 750,000. My question is can I take my half (around 300,00 after mortgage/fees) and use it to buy a car, put some into savings, and the rest into buying a single family home without getting taxed. I'm not sure if there is a certain amount that doesn't get taxed or will all of it get taxed? I'm in California btw. My brother says I have to do a 1031 exchange or I will get screwed with the taxes. Does anyone know if this is true or is there some loop hole or inheritance allowance? Any help would be much appreciated! Thanks

Jim

[Bill Exeter]

Hi Jim,

If you inherited the property in 2011, you most likely received a step-up in cost basis at that time. It that is true, then your cost basis would be equal to the fair market value at the date of her death. You would only be responsible for the taxable gain earned after 2011. So, the gain may not be enough to worry about a 1031 Exchange. Good questions for your accountant.

Also, you mentioned a trust. Is the property still in the trust? The trust could pose problems for you if you want to 1031 Exchange by yourself. We'd have to dig deeper to see what the issues are.