All Forum Posts by: David Ellis

I have another question for the group. I want to know how the boot will be calculated for  buying a replacement property that  is less than the sold property. For instance, I bought a property 10 years ago for $155,000. I'm now selling it for $165,000. I will net about 60k from the sale. I want to buy a property for $100,000. I know that is less than the property I sold so I will have to pay tax on the different. My questions are, how do I calculate the "boot"? What tax is applied to the boot? Is it just my normal tax rate? Do I pay any tax on the depreciation when I'm taxed for boot? Thanks for your help.

David.

Thanks Dave. You can always count on someone named Dave.

Dave.

Sorry, but it sounds like Wayne and Jessica do not agree. If I get a property that is 78k use all of my cash left from the sale 39k and add additional funds I have in savings, I don't take out a mortgage, is that ok or not?

Ok, thanks guys.

Thanks Jessica, that's what I was wondering. So I had a property worth 85k with a 39k mortgage. I have to find another property for at least 85k and mortgage it for at least 39k? I have other funds I was going to use to pay off the property in full but your saying if I did that I would have to pay some tax on the mortgage amount? What if I do get a mortgage but then I pay it off later in the year?

Joel, thanks but i'm just asking about the tax liability from the 1031 exchange. What I would pay on my total tax bill is not what I'm interested in. The question was, since the property was bought for 86k and sold for 85.5k but I'm only paying 55.5k plus 20k in improvements for the new property is there any tax liability because the replacement property is less than the sold property or am I ok because the net proceeds from the sale of 38.5k will be used in full for the replacement property?

Jessica, I'm not sure you understand how the capital gains tax is calculated. Maybe I'm wrong and please let me know if I am but from what I read capital gains is selling price - selling costs - basis, it's taxed at %15. In my case the selling price is 85.5k, selling costs are about 7.5k, and the basis is about 57.8k (original price 86k - depreciation 28k). So that's about 20k in capital gains taxed at 15% is 3k. I then would have to pay tax on my depreciation (28k at 25%) = 7k. So there are around 10k of tax liabilities for this sale. If I do a 1031 exchange that costs 1.5k then I'm saving 8.5k to use to reinvest.

I have another scenario to discuss. Before that, yes I'm doing a 1031 exchange and the funds are in the account now using an intermediary. So here is the scenario:

Sold Property for $85,500, original purchase price was $86,000. Outstanding mortgage of $39,000 paid off at closing. Closing costs around $8,000. About $38,500 net proceeds.

New property bought for $55,000. Will spend another $20,000 to fix the property. No loans taken out.

The letter from the 1031 exchange states "In order to defer capital gains,

your approximate target replacement value should likely equal or exceed $85,500. This amount includes any debt which was paid off upon sale of the relinquished property as well as the $39,815.15 of cash we are holding in the segregated QI account for your exchange.

Will I owe any tax on the above property since it' being purchase for less that the sold property or am I good since the purchase price of 55k is more than my net proceeds of 39.8k?

Yes I'm using a qualified intermediary. The proceeds are in the 1031 exchange account now. It was never a primary residence.

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.