Discussion:Tax free sale of rental property
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Discussion Forum Index --> Tax Questions --> Tax free sale of rental property
| 1 June 2006 | |
| Client has rental property which has been vacant for 2 years while it is being fixed up for rental. unfortunately funds have been low so it's taking too long. Calls and tells me he wants to sell the property and buy another within 180 days, therefore deferring the gain, according to his source. I tried to explain that he is selling the property, not exchanging it. He insists that real estate attorney says it can be done. I don't agree. Any thoughts? | |
| 1 June 2006 | |
| Sec. 1031 exchange. Make sure the attorney actually understands these things. I've had attorneys who claimed to, and got it wrong. | |
| 1 June 2006 | |
| A qualified intermediary would be, for example, a realtor, attorney, or an accountant that the taxpayer has not used in the previous two years. Client would have to identify the property he would obtain within 45 days - in writing. Client in effect assigns his rights to the QI. Locate a realtor that handles these 1031 transactions regular. | |
| 1 June 2006 | |
| Christine: This might help you. | |
| 1 June 2006 | |
| Thanks for your help. So 1031 EXCHANGE applies even though a SALE is taking place. Also going to calculate his actual gain on sale to see if it's worth it. Thanks again. | |
| 1 June 2006 | |
| NO. If your client consumates a sale on his own then a 1031 exchange is not possible. He simply has a sale that would be reported on a 4797 - assuming a Sch E has been filed in the past. If it has never been rented and no E filed, I would be inclined to report it on Sch D - treated as investment property. | |
| 2 June 2006 | |
| He did rent it. It's been vacant for 2 years. He will go thru QI to sell. If calculated gain on sale is not that much then I would advise to just sell and not use QI for 1031 exchange. Sorry if i confused you. Sale is not taking place yet. Just weighing options before he puts it on the market. | |
| 6 June 2006 | |
| HI Guys,
Christine becareful with 1031 exchanges they are a bit misleading. I had a client who spent money on lawyers and QIs and in the end thought the expense and effort did not out way the reduced tax liability. Read the IRS publication very carefully, also review any library resources you have in detail. The reason I say this my client thought they only had to reinvest the gain (adjusted cost basis minus contract price)rather then the entire contract price. Also, as you probable realize the newly exchanged property will have a reduced basis calculation. In other words the IRS WILL eventually recieve the tax on this gain. The gain is just basically postponed or defferred NOT eliminated. Good luck, Susan | |
| 6 June 2006 | |
| Tuesday, June 06, 2006
Remembering 62 years Ago...D - Day Normandy Invasion Greetings to all. A section 1031 exchange would accomplish the client's goals of getting rid of the unimproved rentalt property and/or obtaining funds. The client would have to take the total proceeds from the sale of the rental property, in a section 1031 exchange, and buy like-kind property with the proceeds. The unimproved rental property can be exchanged for improved rental property. Any realized gain would be deferred until the acquired rental property is sold. As a result of this section 1031 exchange, the client achieves three benefits, as follows: 1 - The client would defer the recognition of gain, as mentioned above. 2 - The client would have improved rental property that does not need any further renovation work. 3 - The client can improve his/her need for funds by improving cash flow with the rental of the acquired, and improved, rental property. Like - Kind property refers to the nature of the property, and not to its grade or quality. Thank you.
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| 19 June 2006 | |
| My rule of thumb is that there needs to be at least 10k in tax due to make doing it worthwhile. The fees to do the 1031 are often near 2k from the legal side, I've been charging 500 to handle them and may just make it a thou soon because it's too much work, and hard work at that... | |
| 19 June 2006 | |
| JR1 - you're going to charge $1K to act as an intermediary or to handle the tax side of the deal? | |
| 19 June 2006 | |
| The tax side, all the bloody reporting and figuring and re-figuring and re-reporting...argh...what a nightmare. I don't think we're allowed to be intermediaries...? In any event, that's legal work, and as we've discussed in other threads, I'm staying out of that. A trust must be set up and funded...etc. I wonder what others are charging for these things..on the accounting side of the street. | |
| 23 June 2006 | |
| JR1, I am with you 1031s are nightmares and yes from my understanding a taxpayer's accountant and/or lawyer can NOT act as intermediary. FYI: I prepared a complete 2005 1040 return with a rental property 1031 exchange (two different tax parties owned), Sch E, Sch A, Sch B, Sch D, and two states & I charged this client $585. The other tax payer who opt out of the 1031 exchange recognized their half of the gain, had Sch A, Sch B, Sch E, Sch D & all its corresponding forms, research & explanation on an IRA loss, and final preparation of one state. This second client I charged $575 and they barked at that! I ended up giving them an additional $50 off. Looks like I need to go up in my pricing or spend a heck of lot less time in preparation.... and that is not going to happen because as you can see from my responses I'm too through.
Take care, Susan | |
