All Forum Posts by: Richard Chang

Hi,

I bought the unit with this setup from a prior owner many years ago.

So, I didn't make the changes myself.

Thanks, R

Hi all,

Got a letter from City ( Orange Co Ca ) who wants to inspect my unit.

I have 3 units instead of 2.

Appreciate any advice.

Would an attorney be needed ?

Thanks, R

@Brandon Hall   @Mark Creason

Thanks for your help in clarifying this. 

My question is how the basis for each of the 4 properties is determined in the 1031 Exchange.

To simplify the math,  the original basis is 500K and Sale is > $1M with a net of $1M after costs of sale then the capital gain would be 500K assuming there is no capital improvements.

If each replacement property is 250K then the basis would be evenly divided with  500K/4 = 125K each.

Selling a 250K for the same price

250K - 125K basis = 125K capital gain  

Fed Tax 125K * 15% 

Depr recapture 125K * 25K

But if the new properties have different prices: 100K 200K 300K 400K totaling 1M then wouldn't the basis' be proportionally calculated:

10% * 500k orig basis = 50K basis

20% * 500K = 100K basis

30% * 500K = 150K basis

40% * 500K = 200K basis

Likewise the sale of a property would trigger additional depreciation recapture tax rate at 25% of the proportional amount

10% * 200k = 20K 

20% * 200K = 40K 

30% * 200K = 60K 

40% * 200K = 80K 

So, if I sold the 300K house for 300K then the 

Fed Tax @15% would be

300K sale -  200K basis   = 100K capital gain  * 15% = 15K Fed Tax

80K Deprec Recapture * 25% =  20K

Total Tax 15K + 20K = 35K

Gross Profit = 100K - 35K = 65K  before State Taxes

Thanks, R

Hi,

The other scenario would be to sell 1 house and then buy another >= 250K price in another 1031 Exchange.

In this situation, I believe there would be no tax due.

Hopefully, @Bill Exeter can comment

Thanks, R

@Mark Creason

Thanks Mark,

Good point remembering about the Depreciation Recapture.

So, if the depreciated amount were 200K on the property in a $1M Exchange, then

prorated depreciation would be 50K for each of the 4 houses with same 250K price ( tax to be paid at 25% ).

Thus, 25% of 50K would be $12.5K more tax minimum ( not included state taxes ).

I figure that it may be an option with SFRs when you need cash to sell one of the properties.

Best, R

Hi BP'ers and Pros,

I am considering buying multiple SFRs in a 1031 Exchange of my Tri-plex.

Obviously, this will defer any taxes, capital gains etc.

So for a simple example, I will buy 4 x 250K = $1M in a 1031 Exchange.

Let's say my total tax burden would have been 300K.

So, if in the future I decide to sell one of the 4 houses that were part of a 1031 exchange

at say 250K ( same price ) then would I pay a prorated capital gains tax of  75K ( 1/4 of 300K ) or would then entire tax on $1M become due ?

Thanks, R

Hi,

So, if you had bought the replacement property for $280,000 instead of $200,000 then you would NOT have had a $80,000 BOOT causing by recapturing depreciation. I didn't know this.  Thanks for pointing this out !

:)

http://www.biggerpockets.com/forums/32/topics/7175...

Reading this one ...

Thanks, Rich

Update: Looks like searching on BP Posts with: Triple Net or NNN is a good starting point for me.

Rich

Hi,

Maybe, I should have posted this in Commercial RE Forum instead of here ?

Moderator please advise ?

Rich