Discussion:Related Party Sale of Like Kind Exchange Property
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Discussion Forum Index --> Tax Questions --> Related Party Sale of Like Kind Exchange Property
| July 3, 2008 | |
| I have a client that traded a rental house for another rental house last year and deferred a gain. If the client sells the rental house to his son for the current market value which is much less than he paid for the rental house, and therefore his gain on the sale would be much less than the deferred gain on the 1031, would he get the benefit of the lower sale price or due to related party rules would he have to report the entire deferred gain into income and not get any benefit of the loss?
Thanks, Dave | |
| 3 July 2008 | |
| Anytime you sell something to a related party for less than FMV, gifting comes into play. In this case, if he gets a certified appraisal and sells the house for that amount, I suggest that he would be ok. | |
| 3 July 2008 | |
| The deferred gain will not be accelerated in this case. No gift tax return will be required since the transfer will occur at FMV. | |
| 3 July 2008 | |
| I don't understand the term "accelerated" in this instance. Can you expand your answer? | |
| 3 July 2008 | |
| Example. I have a low basis asset that I would like to liquidate, but I don’t want to pay the capital gains tax. So, I exchange my 25-unit apartment building with a basis of $10,000 and a fair market value of $500,000 for my mother’s beach house with a basis of $495,000 and a fair market value of $500,000. My mother waits until 2 years after the exchange to sell the apartment building for $500,000 at a gain of only $5,000.
If my mother counted wrong and didn’t wait the full 2 years after the exchange to sell the apartment building, my deferred gain of $490,000 would be immediately accelerated or recognized. See Internal Revenue Code § 1031(f). | |
| July 3, 2008 | |
| Thank you both for your information. I would think also that if the parent sold the house to the son who was going to use the house as his residence, this could be done as an installment sales since the property would not be depreciable to the son. He would have to hold the property at least two years as well. | |
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