Can I Do a 1031 Exchange?

[Jeremy Martin]

So my grandma deeded a house to my brother and I as a gift in Oct 2018. We’re approaching the 1 year mark, and he is applying for a cash-out refinance to buy out my portion of the home.

My grandma bought the house in 2011 for $235,000, and she put some money in for improvements. My brother and I also put some money in for improvements. The house now appraised for $355,000, so my brother will be giving me half of that. The cash I receive would be $177,500.

For argument’s sake, let’s just say the “gain” is the difference in price of $120,000. Since I am paid out half, my gain is $60,000 (higher if we counted deprecation, I guess). So I would have to pay taxes on that right?

Q: Now, can I avoid taxes on this gain by applying $50,000 of it as a down payment on a house of my own, using the 1031 exchange? (The new house would be my own residence).

Q: If I can do the exchange, do I only pay taxes on the portion of the GAIN that I keep in cash? (So I pay tax on the $10,000 of leftover GAIN, and NO tax on the other $117,500 that was not a gain?)

Thanks

[Bill B.]

2 of the last 5 years for an exemption.There would be no depreciation unless it was a rental. But if she paid gift taxes it was probably on the October 2018 value, not her purchase price. That means your gain would start since then, pry close to zero.