All Forum Posts by: Jennifer Stanovich

Lauren, thank you for the suggestions!  In talking to the QI I’ve been working with, I thought we could designate a percentage of the property as personal and percentage as rental.  That isn’t a good idea?  I thought of it like living in one side of a duplex but know the IRS doesn’t use the kind of logic I use.  We really don’t want to have to hold onto our current residence for 2 years (as an example).  

Part of the equation is how much tax are we saving/deferring versus how much of the property qualifies for the exchange, how much are we paying for the Reverse Exchange, home equity loan if we have to go that route, how much boot will we have to pay taxes on regardless of the exchange, etc.  Not easy answers for people who don’t know real estate investing!

My husband and I intended to do a reverse 1031/investment exchange that has gotten a little too complicated. We've identified the replacement property, to make the numbers easy costing $300,000. We plan to live on it as well but not sure of the timing of building on the 9 acres.  Ultimately a house and garage for us, rental cabins for the investment portion.  I would guess not more than 1/3 for primary residence.  Initially a garage with a living area that will house both rental and personal items.  We think we will build rental cabins next and a house later but we might just keep living in the garage area for an extended period of time.  Closing end of October/beginning of November.  One question is valuation of investment versus residence (how does the caretaker quarters come in to play?) but first...

We plan to sell a relinquished property worth about $350,000 some time after the closing on the replacement property.  We were going to do improvements in the 180 days to use try to up the full $350,000 some of which depends how much of the garage can be considered improvements and how much of the land as the investment was used up with the $300,000 purchase price.  I now learn (maybe I'm using the wrong 1031 exchange company...) that the credit union I planned to use for the loan with 20% down is not likely to get involved in an exchange like this.  I just reached out to my lender today.  I am considering my options for the best tax strategy and don't have time to waste!  We stand to "save" about $75,000 in taxes from both the deferred capital gains taxes and the avoiding the increase in healthcare tax etc with our income pushed $350,000 higher for the tax year.

I understand the easiest solution to my possible lender problem is to pay cash for the replacement property.  We have no mortgage on our primary residence or the relinquished property.  We have assets that we do not want to liquidate.  So we have wealth, but not cash.  What are other options?   My husband threw out home equity loan (house worth $400-450,000) to fund the replacement property, to be paid off upon sale of the relinquished property.  I have no idea how viable a strategy that could be.  We could probably get $120,00 in cash from our parents combined.  Perhaps just paying the taxes on the sale of the relinquished property is the best option. Any ideas?  Other information you need to be able to help me?  Who is the best professional to help me sort through all of this?

Thank you!

Thanks, Dave.  No transactions have happened yet.  We are selling our duplex to the property manager but have not started that process and we also could do a reverse 1031 if we bought the rental house before the duplex sold, as you advised me a previous thread:)

How do I show intent?  

Then if I successfully show intent, is there no affect on the way the expenses, which will be substantial, are handled on my tax return when I move in because the expenses were incurred while it was an investment property?   Do the expenses only go into the basis for depreciation as Ashish's post stated because the expenses are incurred before it is rented?  If the expenses are not affected, is it just how much tax I pay on the proceeds when I sell if I  change it from a rental to a residence?

I know I will need a more in-depth consultation with an accountant but just trying to evaluate the options and implications.

Thank you!

Jennifer

Thanks Ashish!  I should have stated I was going to do a 1031 exchange to defer the taxes from the sale of the duplex.  

I did not know the expenses incurred before the property is rented go into the basis.  On my duplex the expenses are taken against the rental income.  So is the difference in the way the expenses are handled based on whether the work is done before versus after renting it?  

I am buying a rental house with proceeds from the sale of a rental duplex.  I plan to renovate the house.  There is a possibility I will ultimately move into the rental and sell my current residence.  I know I would then have to pay the deferred taxes from the sale of the duplex but what happens to the expenses I took on the rental house during the renovation?  What do I need to do to still qualify for the tax deduction on the expenses?  Do I have to rent it for a certain period of time before I move in?  If so, what happens if I can't find renters and move in without having rented it?  

Thanks for your help!

Thanks, Dave!  We'll start planning and get more details/advice from a real estate CPA.

I am not a real estate investor but my husband and I own a duplex worth about $300k with 100% equity that he’s owned for 25 years and a residence worth about $450k with 100% equity that we’ve owned for 18 years.  We want to ultimately sell both properties and put the combined amount into buying land that we will eventually build on and live on with cabin(s) to rent out.  We plan to live in our current residence until the new property has a house built, which could take us years to get done.  The tax implications of selling the duplex affect how much money we have to put into the new property.

What do we need to do to maintain eligibility for a 1031 exchange?  How do we determine how much the rental part of the property is worth versus the residence part when there is nothing there yet?   How soon must we start to generate rental income?  As soon as we move into the residence portion?   We are planning a very specialized service, catering to guests with certain environmental sensitivities, and are unsure how strong (or weak) the demand will be for our rental cabin(s) so we plan to start with just one rental cabin.  What happens if there is very little rental income?