A. I will have capital gains at the long-term rate of 15% for my first and second interests acquired, calculated as the present value the condo will sell at, minus the stepped-up value at the time I acquired each interest.

B. I will have capital gains at the short-term rate based on my income tax rate for the third interest I acquired because I will have had the property less than a year at the time of closing. Again, the capital tax rate would be based on the sale price - the stepped-up value of the property when I acquired the third interest. I also believe the income used for purposes of establishing my short terms gain tax rate is calculated as my income + the capital gains amount (also deemed to be income), which will push me up into another tax bracket.

C. I will NOT have any depreciation recapture because no depreciation was ever claimed/deducted.

D. There will be no gift tax due because it was the deceased owner's estate responsibility to file and pay gift tax and I received my interest by right of survivorship?

Tax Questions:

Are my assumptions in A, B and C and D above, correct? If not, please help me identify any errors or anything I missed and need to also account for.

1031 Exchange Implications

E. I currently hold the property interest as an individual. Before I complete a pending sale of the property, I would like to form a Wyoming single member LLC and place the property interest in the new LLC. It is my understanding I can then elect subchapter s taxation and the LLC will be deemed a disregarded entity by the IRS. Based on the disregarded entity status, I can then change the title to the new LLC, complete the sale of the property and 1031 exchange the property to purchase a new investment property under the LLC. All capital gains would be deferred (assuming I comply with all 1031 requirements.) I would be doing this to gain the anonymity of the Wyoming LLC, limiting my liability regarding the property to the LLC and also gaining the creditor protections of Wyoming law, since it only provides for a charging order that does not permit a creditor to force sale, direct distributions or acquire an LLC interest, even for a single member WY LLC. This would put the replacement property interest in the strongest asset and creditor protection scenario.

F. Once the 1031 exchange is completed (again assuming 1031 compliance), I can continue to rent the property indefinitely or at any point after 2 years of rental, use it as a primary residence and thereafter living in the property for at least two years qualify to use the Section 121 Exclusion to eliminate capital gains entirely (gains estimated to be about $70 K, well under the $250,000 single filing limit).

G. Once the 1031 exchange is completed (again assuming 1031 compliance), I am free to leverage the property in any way, without any 1031 restrictions. For example, to get a HELOC, pledge the property as collateral for a loan/mortgage or otherwise.

1031 Exchange Question

Are my assumptions in E, F and G above, correct? If not, please help me identify any errors or anything I missed and need to also account for.

Reinvestment Questions

I have no credit available but may be inheriting additional funds in the next six months (about $80K). These would be Florida homestead proceeds passing outside probate, so I do not believe there are any taxes due given the smaller amount.

I currently pay a sizeable rent in FL and would like to get a new home to convert the rent expense into generating value in a new property that will appreciate. If my assumptions in question G above are correct, I would try to create a structure or scenario where I can maintain the 1031 replacement property as a rental and leverage its value or equity to be able to get a primary residence property. In theory this would hopefully reduce my monthly rent costs and my payments would go to the new 2nd property to build equity. I will have the current rental sold and my 1031 time begin in October, giving me until June to close on a replacement rental property. The rental lease where I am living will expire on Jan 1 but I need to give notice by November or so. Is this reasonable time to complete the 1031 and leverage it to obtain a new residence? I am considering the New England market for my relocation and need to decide whether I should consider a 1031 replacement property in those areas or in another state.

Please provide any advice or suggestions on the above reinvestment scenario and whether it is advisable/doable and any other recommendations you may have. I need help understanding my options to ensure I minimize or avoid capital gains and the different ways I can use that property to support getting a primary residence for myself. I hope to have personal credit and tax issues resolved but I know that will be at minimum 6 to 8 months' time assuming no more medical emergencies or health issues. I don't know much about real estate so I need guidance on whether to look for a single-family home, a town home, something near colleges, etc. given that I will have a very limited budget. Also, any recommendations if there are better ways to structure or approach this versus a 1031 exchange. I estimate my capital gains will probably be $60-70K on $270K in sale proceeds.

All advice and help are greatly appreciated.

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