Discussion:1031 exch: Something wrong here?

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Discussion Forum Index --> Advanced Tax Questions --> 1031 exch: Something wrong here?


Discussion Forum Index --> Tax Questions --> 1031 exch: Something wrong here?

Stacie (talk|edits) said:

5 April 2014
After I calculated, the new property basis exactly equals to its FMV.

Client sold her property for 308,000: this property has original cost 249,540, depreciation allowed $66207, so adjusted basis was $183,333. Selling expenses 13046, proceeds paid off her mortgage 110,321.

She then used the remaining proceeds 171033 plus cash 58974 to purchase a property with FMV 233,157 through 1031.

My calculating is realized gain =new property FMV 233157+ cash received (110321-13046)- adjusted basis 183,333-cash given 58,974=88125

Recognized gain = 88125 too( including 66207 recapture)

New property basis = (adjusted old building basis 183,333+cash given 58974)+recognized gain 88125-cash received (110321-13046)=233157

Something is wrong here?

thanks for help.

Doug M (talk|edits) said:

5 April 2014
How much debt on the new property?

Doug M (talk|edits) said:

5 April 2014
Gain realized is as follows:

Received: $233,157 + 110,321 (FMV of property received plus debt relief)

You gave up: $183,333 + 35,478 + 13,046 (the $35,478 is net cash given)

Gain realized $111,621 (308,000 - 183,333 - 13,046)

Gain recognized is as follows:

Cash given $35,478 + $13,046 less gain on debt relief of $110,321 = gain of $61,797 (all recapture)

Gross numbers are what need to be used.

Stacie (talk|edits) said:

5 April 2014
Thanks, Doug.

Not debt for new property, client paid it off by proceeds 171033 plus cash 58974.

Doug, How the $35478 calculated? I could not come this figure.

Gain realized shall subtract cash given?

Thanks again

Wiles (talk|edits) said:

5 April 2014
There definitely is something wrong here. We are missing $13,600 on the sale and $3,150 on the purchase.

Sale: 308,000 - 110,321 - 13,046 - 171,033 = 13,600

Purchase: 233,157 - 171,033 - 58,974 = 3,150.

Doug M (talk|edits) said:

5 April 2014
You received cash of $197,679 (308,000 - 110,321)

You gave cash of $233,157.

Net cash given is $35,478

Doug M (talk|edits) said:

5 April 2014
The net cash given and the exchange expenses paid are used against the debt relief of $110,321 gives you your gain recognized.

The gain realized should be the good old normal computations of: I sold the property. What were the closing costs and basis in property sold vs. sales price of property.

Stacie (talk|edits) said:

5 April 2014
wiles, you are right,

Selling expense shall be 13046+7700, the remaining 13600-7700 were prorated rent, property tax and were reported in Sch E.

Purchase : cash given shall be =58974+2000( deposit), the remaining is prorated property tax in Sch E too.

I see, Doug. Thanks

Taxmonkey (talk|edits) said:

5 April 2014
Ill take a stab at it, but I am far from expert.

Realized gain - 233,157 + 110,321 - 183,333 - 13,046 - 58,974 = 88,125 **check

Limit on recognized gain - 110,321 - 13,046 = 97,275

So recognized gain is equal to the smaller of realized or limit = 88,125

New property basis - 183,333 + 58,974 + 13046 + 88125 - 110321 = 233,157

So it looks like I agree with your numbers, which also seems correct in that the FMV of the new property is greater than the FMV of the old property less the recognized gain. Therefore I would expect the basis in the new property to be the FMV of the property.

Doug M (talk|edits) said:

5 April 2014
cash given shall be =58974+2000

Cash given is $35,478 + whatever the correct exchange expenses are from both escrows/ + exchange fee

Doug M (talk|edits) said:

5 April 2014
Realized gain - 233,157 + 110,321 - 183,333 - 13,046 - 58,974 = 88,125 **check

Realized gain is the "normal gain", forget the rest.

I sold property for $308,000. Basis is $183,333. Cost of sale is $13,046. Realized gain is $111,621

Doug M (talk|edits) said:

5 April 2014
New property basis - 183,333 + 58,974 + 13046 + 88125 - 110321 = 233,157

Basis in new property = basis in old.

Ckenefick (talk|edits) said:

5 April 2014
I see no mention of security deposits assumed, relinquished.

Taxmonkey (talk|edits) said:

5 April 2014
Looks like I have yet another summer project =)

Stacie (talk|edits) said:

5 April 2014
Yes, Ckendfick, there was $2000 security deposit .

Security deposit 2000 rent prorated : 2439 Selling expense: 20746 Property tax: 474 Paid off loan : 110321 Cash to transfer to new property: 172020 ( but was 171,033 in new property hud, I guess diff $ 987 was bank charges?)

Total 308,000

Stacie (talk|edits) said:

5 April 2014
The new property has not other fees as seller paid the closing costs.

Ckenefick (talk|edits) said:

5 April 2014
I really don't see how you can do these properly without spreadsheeting out the debits and credits with respect to the closing statements for both the relinquished and replacement properties, and then have additional columns for (1) valid exchange expenses and (2) non-exchange expenses, for things like pro-rations, prepaids, etc. Once it gets spreadsheeting out, then you'd do your got/gave analysis. The spreadsheet I have formulated, in Excel, which is straight from the Regs, is about 66 lines long.

Wiles (talk|edits) said:

5 April 2014
I agree with Doug in post #3 assuming that the only *real* exchange expenses were the $13,046. This would make $13,600 of boot taken out at the sale and $62,124 of boot "contributed" at the purchase.

Who is up for a brainteaser?? What would the answer be if Stacie's client put in enough cash on the repurchase to purchase a replacement property for $294,954?

Ckenefick (talk|edits) said:

5 April 2014
assuming that the only *real* exchange expenses were the $13,046.

Yeah, and what are the chances of that?

Doug M (talk|edits) said:

5 April 2014
Cash paid (net) reduces mortgage relief. -0- gain

Wiles (talk|edits) said:

5 April 2014
That is a good try Doug, but it is incorrect.

Anybody else care to give the brainteaser a try?

Stacie (talk|edits) said:

6 April 2014
Ok, depreciation is $66207, and realized gain is 70000,

so for realized gain, the gain shall be ordinary income 66207, and long term capital gain $3793?

or $70000 shall be treated as long term gain? And recapture shall be deferred?

the reason I asked was the return I prepared was already prepared by other,she came out the gain is much more than mine, but she took all as capital gain, and thus federal tax was zero.

Thanks

Stacie (talk|edits) said:

6 April 2014
In order to realize these gains , the sale price shall be Adjusted basis 183,333+70,000 or 183,333+3793?

I was pretty clear before, but I look the return someone else prepared, confused.

Stacie (talk|edits) said:

6 April 2014
Sorry, I mean recognized gain $70000

Spell Czech (talk|edits) said:

6 April 2014
Was the property that was surrendered *real estate* or was it *personal property*? The "recapture" rules are different, depending on the kind of property that was given up. I hate to bring this up at this late date, but after the return has been filed might not be a good time to bring it up, either...

Wiles (talk|edits) said:

6 April 2014
Stacie, You are saying "recapture", but perhaps you mean unrecaptured Sec 1250 gain. I know, it's just easier to say "recapture". I believe unrecaptured Sec 1250 gain can also get the 0% long-term capital gain tax bracket if the income is low enough.

Ckenefick (talk|edits) said:

7 April 2014
Is the recognized gain $13,046?

Wiles (talk|edits) said:

7 April 2014
Chris was playing the brainteaser question posted a few threads above. Chris, did you mean $13,046 or $13,600?

OK, so the answer is $13,600. This was the boot that was taken out on the sale of the relinquished property. In my brainteaser question, the taxpayer was buying a replacement property equal to the net sale proceeds from the relinquished property. Most exchange worksheets would see that the taxpayer kept their "equity" the same and thus no gain recognized. However, there was $13,600 of boot removed on the sale. This can't be fixed by putting the money back in at repurchase.

Stacie (talk|edits) said:

7 April 2014
CKenefick, recognized shall be about 70000. Spell, the return has not been filed yet( the one already prepared has very high gain and the client didn't think it right , zero Fed tax liab,but high $$ for state tax ) Wiles, Right , it shall be unrecapture Sec 1250 gain, but when using tax software , I have problem to separate it, always come out as ordinary income

How can I turn these ordinary income to unrecaptured sec 1250 when doing 1031? When doing.

Thanks.

Ckenefick (talk|edits) said:

7 April 2014
CKenefick, recognized shall be about 70000.

Not in the brain teaser...

Wiles (talk|edits) said:

7 April 2014
What software are you using?

Are you including Sec 1245 assets in the combined disposition? Dispose of those separately from the Sec 1250 assets.

Stacie (talk|edits) said:

7 April 2014
Wiles, I use Drake. yes, I did a group disposition.

Ckenefick (talk|edits) said:

7 April 2014
In my brainteaser question, the taxpayer was buying a replacement property equal to the net sale proceeds from the relinquished property.

That's not how I saw it...the net proceeds from the sale of relinquished were $171,033. And, the replacement property wasn't bought for $171,033. If Stacie's client put in enough cash to purchase replacement, she would have put in $123,921. So, she relinquishes for $308,000 and buys replacement for $294,954, with the difference being $13,046.

Stacie (talk|edits) said:

7 April 2014
Ckenefick,

a property with 183,333 basis sold for a new property 223157, and plus paid off loan 110321, the recognized gain shall be around $70K

Doug in the above #3 post's calculation I think is pretty close.

Wiles (talk|edits) said:

7 April 2014
There were $13,046 of REAL exchange expenses on the sale escrow. I guess I have my own definition of "net sales proceeds". I use sales price minus selling expenses, therefore, net sales proceeds = $308,000 - $13,046 = $294,954.

These are the facts for the brainteaser question:

Relinquished Property:

  • Basis $183,333
  • Sale Price $308,000
  • Mortgage paid off $110,321
  • Real exchange expenses $13,046
  • Prorations and such $13,600
  • Transfer to QI $171,033

Replacement Property:

  • Purchase $294,954
  • From QI $171,033
  • Cash in by buyer $123,921

Most exchange worksheets would see the $294,954 net sales price and the $294,954 re-purchase and call it good, no boot, no gain recognized.

Wiles (talk|edits) said:

7 April 2014
Stacie, Ckenefick is replying to me regarding the "brainteaser" question that has different facts. Yes, go with Doug #3 for your situation.

Ckenefick (talk|edits) said:

7 April 2014
Yeah, I was thinking net proceeds = net cash.

...but I still get the same answer.

Ckenefick (talk|edits) said:

7 April 2014
Ckenefick,

a property with 183,333 basis sold for a new property 223157, and plus paid off loan 110321, the recognized gain shall be around $70K

I'm not following your post. It's a mess. Like I said, you need to present things in a closing statement like fashion to get anywhere close to the real answer...in a fashion that Wiles has done with the Brain Teaser.

Wiles (talk|edits) said:

7 April 2014
I think this is what Stacie's got goin' on:

Relinquished Property:

  • Adjusted Basis $183,333
  • Sale Price $308,000
  • Mortgage paid off $110,321
  • Real exchange expenses $20,046
  • Prorations and such $5,613
  • Transfer to QI $172,020

Replacement Property:

  • Purchase $233,157
  • From QI $171,033 ($987 of expenses incurred while funds held by QI)
  • Cash in by buyer $60,974
  • Prorations and such $1,150

Is this correct, Stacie?

Stacie (talk|edits) said:

7 April 2014
Wiles, but Doug's gain of $61,797 was "all recapture" . shall not be unrecaptured gain ? I still have problem, Drake kept to treat it as ordinary income.

Wiles (talk|edits) said:

7 April 2014
I can only presume that Doug was using the term "recapture" loosely. He meant to say unrecaptured Sec 1250 gain.

You gotta get your Sec 1245 assets out of the disposition. Group just the Sec 1250 assets together and sell those.

Wiles (talk|edits) said:

7 April 2014
Any chance your client has had a Section 1231 loss in the prior 5 years?

Ckenefick (talk|edits) said:

7 April 2014
What happened to the Brain Teaser?

Spell Czech (talk|edits) said:

7 April 2014
"I still have problem, Drake kept to treat it as ordinary income."
"You gotta get your Sec 1245 assets out of the disposition. Group just the Sec 1250 assets together and sell those."

Stacie: How much of this "sold" property was Section 1245 property (personal property) and how much of it was Section 1250 property (real estate)? If you don't have this information, you *can't* get the right answer on the tax return, because you didn't give Drake enough information about what was sold.

Ckenefick (talk|edits) said:

7 April 2014
Yeah, but what about that *Brain Teaser?*

Stacie (talk|edits) said:

7 April 2014
Spell, about $1878 sec 1245, and $30,ooo remodel in 2013, shall I treat this differently?

I took section 45, but still ordinary income

Ckenefick (talk|edits) said:

7 April 2014
But what about that *Brain Teaser*...I'm interested in Wiles' theories here...

Stacie (talk|edits) said:

7 April 2014
Sorry, I mean I took out section 1245, but still treat as ordinary income .

this the first one with section 1250 recognized gain 1031 exchange I did. my steps is: disposed the section 45 and 50 separately, and the sale price for 1250 section = adjusted basis+ recognized gain

Ckenefick (talk|edits) said:

7 April 2014
Where'd Wiles go, with that *Brain* *Teaser*?

Spell Czech (talk|edits) said:

7 April 2014
Have you told Drake that the Section 1250 property is Section 1250 property? What lines on Form 4797 is Drake using to report the gain from the sale of the Section 1250 property?

Wiles (talk|edits) said:

7 April 2014
Sorry. I was sleeping. I know, I know. That is unacceptable behavior. Please forgive me.

Where did we leave off with the teaser question? Chris, are you still coming up with $13,046 as the gain?

Ckenefick (talk|edits) said:

7 April 2014
That is unacceptable behavior.

I fell asleep in my chair the other day and one of my kids thought I was dead. When I woke up, I told her to put the confetti away...now THAT is not acceptable behavior...

Yes, $13,046...what's up?

Wiles (talk|edits) said:

7 April 2014
Sale price $308,000 less exchange expenses of $13,046. Therefore, net sales proceeds = $294,954. The purchase of the replacement property is at $294,954. So where is the boot? There is none, right?

But what about the boot on the sale? The $13,600 of rent prorations and such?

How did you come up with $13,046?

Wiles (talk|edits) said:

7 April 2014
Any chance your client has had a Section 1231 loss in the prior 5 years?

Stacie, Is there a number in Line 8 of your Form 4797, page 1?

Wiles (talk|edits) said:

7 April 2014
Chris, did your office have the pleasant smell of a Sharpie when you woke up? Have you looked in the mirror?

Nilodop (talk|edits) said:

7 April 2014
Last night on Resurrection TV show, one of the resurrected individuals (who had died 12 years before) was examined by a doc who told her she was pregnant. If conception occurred before her first death, how old will the baby be when he/she is born? And "how far along" is the pregnancy? No, it did not happen since she was resurrected.

That show raises lots of tax and related questions. For instance, when will she be 59-1/2? If she had a taxable estate when she died the first time, can she still claim a refund of the estate tax? Do her previous heirs keep their step-ups? Does she have 12 years of unfiled returns?

Ckenefick (talk|edits) said:

7 April 2014
No Sharpie's in my office. I think Lenny has all of them...and I also think he's been *sniffing* them...

Stacie (talk|edits) said:

7 April 2014
Wiles,

the client have not other 1031 exchange in 5 years. This is the first one.

She also sold another property 2013, just regular one, there is not problem.

The other preparer came out total gain 140000, with zero tax ( the client has other loss deduction), mine came out total gain 110,000, with &9800 fed tax.

I will check 4797 and let you know.thanks.

Wiles (talk|edits) said:

7 April 2014
The other preparer came out total gain 140000, with zero tax...

The bigger mystery here is why would your client have you re-prepare a return, if their first one had $o tax on it?

Ckenefick (talk|edits) said:

7 April 2014
You can dice and slice that Brain Teaser in many, many different ways to arrive at the $13,046 recognized gain. Or, you could just say it this way, as I said it above:

So, she relinquishes for $308,000 and buys replacement for $294,954, with the difference being $13,046.

Basically, she traded down. In terms of the $13,600 non-exchange expenses, those are imbedded in the purchase price of replacement. Taxpayer kicked in $123,921. So, one way to slice and dice is to wash the debt against the $123,921. And if you do, you end up with Revised cash paid of $13,600, which is indeed enough to cover the non-exchange expenses. But now your Net Cash is $0, and you're left with a sale of relinquished for $308k and a purchase of replacement for $13,046 less.

Wiles (talk|edits) said:

7 April 2014
So we differ on 2 issues:

1. The $13,600 boot out on the sale

2. The $13,046 exchange expenses

Let's talk about #1...

So what if the taxpayer paid off property tax liens, deferred interest on the mortgage, and a bunch of credit cards during the sale, and only sent $100 to the QI? Then during the 180-day period, they met with their accountant. She ran the numbers and told him about all the tax that he is gonna pay. He decided that is too much tax. So, prior to the re-purchase, he draws the $308K (less the $100) against his home equity line, sends it into the escrow company and completes the exchange for the same price he sold the relinquished property. Any recognized gain here?

Stacie (talk|edits) said:

7 April 2014
Wiles,

Because she need to pay state tax about $8000. She didn't think that was right. she didn't think she had gain that much either.

Wiles (talk|edits) said:

7 April 2014
Have you checked that Form 4797 yet?

Also, tell me about these "other loss deductions". What are they? Why do they not exist on the State return?

Ckenefick (talk|edits) said:

7 April 2014
I don't differ on either of those issues.

You can most certainly come to an exchange with cash to cover the prepaids/non-exchange expenses.

In your new example: If relinquished is sold for $308k, but unrelated items total $307,900 and are paid off at closing, I agree, QI would only get $100 from the sale. If the taxpayer purchases a replacement property for $308,000 (FMV) and comes to the table with $307,900 in cash, there isn't any recognized gain. The cash boot paid washes with the cash boot received. You only have a problem with these prepaids/non-exchange expenses when you don't come to the table with cash to pay them; when you pay them out of the equity of the property sold.

For example, let's say a free and clear property is sold for $308k. Taxpayer wants a replacement property and one is found, which will cost $308k all in. Taxpayer says "great" and closes the deal without outlaying any personal cash. Then, we look at the closing statement for replacement and learn that the property cost $303k and we funded an escrow account for $5k, which accounts for all $308k the QI rec'd from the sale of relinquished. In that case, we traded down by $5k and we have $5k of recognized gain. We have $5k of boot with nothing to offset it. If we assume property's basis was $0, to book the transaction we debit Escrow Account Asset for $5k and credit Recognized Gain for $5k.

Now, if replacement cost $308k (FMV) and there is also a $5k escrow account we need to fund, we need to bring $5k of cash to the table to make the deal happen. And if we do, there is no recognized gain.

Wiles (talk|edits) said:

7 April 2014
So in my new example, you would not consider the $307,900 as the constructive receipt of boot from this deferred exchange? Does the fact that the taxpayer put the money back within the 180 day period reverse this receipt?

Stacie (talk|edits) said:

7 April 2014
Wiles,

Other deductions included Sch C loss and Sch E rental Loss $25000, ( she still has other 6 rentals) after deduction, all taxable income are long term capital with 0% tax rate since the other preparer treated all as long term gain.

I am not in the computer I did tax return right now. But shall be able to get form 4797 soon

thanks

Ckenefick (talk|edits) said:

7 April 2014
So in my new example, you would not consider the $307,900 as the constructive receipt of boot from this deferred exchange?

No, I would consider it to be the actual receipt of cash boot. And I would consider the $307,900 in cash the guy brings to the table to complete the exchange to be cash boot paid. And I would wash the two against each other, which is what you are permitted to do with cash boot going both ways.

Wiles (talk|edits) said:

7 April 2014
Example #2 of Reg § 1.1031(k)-1(j)(3):

(i) On May 17, 1991, B transfers real property X to C and identifies real property S as replacement property, and C transfers $10,000 to B. On September 4, 1991, C purchases real property S for $100,000 and transfers real property S to B. On the same day, B transfers $10,000 to C.

(ii) The $10,000 received by B is “money or other property” for purposes of section 1031 and the regulations thereunder. Under section 1031(b), B recognizes gain in the amount of $10,000. Under section 1031(d), B's basis in real property S is $50,000 (i.e., B's basis in real property X ($40,000), decreased in the amount of money received ($10,000), increased in the amount of gain recognized ($10,000), and increased in the amount of the additional consideration paid by B ($10,000) in the deferred exchange).

My understanding of this example is to illustrate that the $10,000 of actual boot received cannot be washed with the subsequent $10,000 of boot paid.

Ckenefick (talk|edits) said:

7 April 2014
Because B (and not a QI) got the cash. B actually got the cash before he acquired the replacement property.

Stacie (talk|edits) said:

7 April 2014
if in form 4562, I put sale price equals to adjusted basis, so no gain no loss here,then I manually enter gains in form 4797 sounds right?

Stacie (talk|edits) said:

7 April 2014
Otherwise it can not avoid depreciation recaptured if sale price = adjusted basis +recognized gain as nowhere can tell the software this is 1031 exchange

Wiles (talk|edits) said:

7 April 2014
In the IRS example, C is the QI. B transfers the property to C. C sells the property and transfers $10,000 to B. The example does not specifically state whether the $10,000 is cash or not. It just refers to it as "money or other property", i.e. boot.

In my new example, do you not consider the paying off of property tax liens, deferred interest and credit cards as boot?

Ckenefick (talk|edits) said:

7 April 2014
Yes, I consider it boot, as you do.

In the IRS example, C is the QI.

Then C gave the $10k to B, which doesn't really change my last answer: B got the cash.

Ckenefick (talk|edits) said:

7 April 2014
The example does not specifically state whether the $10,000 is cash or not

Sounds like cash if there's a dollar sign in front of it and nothing is stated like "Property worth $10,000."

Stacie (talk|edits) said:

7 April 2014
Right, I think those are boots too, just deducted directly from proceeds, otherwise need to take from pocket. so in my case , added about 5900 gain.

Wiles (talk|edits) said:

7 April 2014
Chris, Are you saying that if B gets cash, then the gain is recognized? However if B gets boot other than cash then the gain is not recognized if B puts cash back into the exchange at a later time?

Stacie (talk|edits) said:

7 April 2014
Wiles,

I checked 4797 line 8, it is blank, nothing.

Ckenefick (talk|edits) said:

7 April 2014
First off, this is a pretty extreme example. I would suspect the QI might require the "other stuff," to which the relinquished is subject, be formally paid off prior to its sale. In the new Example, if the guy has $307,900 that he can bring to the table, he may as well pay-off all the stuff attached to the relinquished, prior to relinquishing it. If he does that, then the relinquished is free and clear. It then sells for $308k, unencumbered, the QI gets the $308k from the sale, then the QI purchases the replacement property with said $308k. Pretty clean.

Your argument is that it is a sale for $308k, and even though "all proceeds" (the $100) goes to the QI, the $307,900 is taxable boot to the taxpayer because he essentially "got it" owing to unrelated nature of these personal encumbrances. I get it. But if the taxpayer throws the $307,900 into the pot, to deal with said stuff attached to relinquished and associated with the sale of relinquished, the taxpayer would argue that he has contributed nettable boot.

Wiles (talk|edits) said:

7 April 2014
True, my new example is extreme. The IRS is example is a bit less extreme. The rule remains the same. You cannot wash out the actual (or constructive) receipt of boot by paying it back later. There is no such thing as "contributed nettable boot".

You do bring up a good planning point, though. If the client comes to you before the sale and you see that they may get some boot out on the sale, then have them contribute cash into the sale transaction. Yes, that's right. The seller makes a deposit to the escrow. I have seen this before when there was large holdback or transfer of security deposits.

Ckenefick (talk|edits) said:

7 April 2014
There is no such thing as "contributed nettable boot".

You have to bring the cash boot paid "to the same table," so yes, there is such a thing. And pretty much every QI I've ever dealt with will offer up the advice to bring cash to the table to cover the prepaids. Here's one from online...look under "Tax Prorations" and also see the PLR referenced therein from 1983:

http://1031cpas.blogspot.com/2010_08_01_archive.html

...the advice given is to bring cash to the relinquished table...

And this one talks about the idea of bringing cash to the replacement table:

http://www.havenexchange.com/1031guide.htm

So, the idea that prepaids can't be dealt with by bringing cash...just ain't right.

Wiles (talk|edits) said:

7 April 2014
That article about bringing cash to the replacement table seems to contradict the IRS regulation.

Ckenefick (talk|edits) said:

7 April 2014
Then maybe the IRS should clarify it....until then...

Stacie (talk|edits) said:

7 April 2014
So , wiles, If not in Line 8, what shall I can do to let it in?

thanks

Wiles (talk|edits) said:

7 April 2014
Then maybe the IRS should clarify it....until then...

Clarify? Like, maybe, put an example in a Reg?

Stacie (talk|edits) said:

7 April 2014
So summary here

Property given: ( adjusted basis 183,333 , depr allowed 66207) 110321 Paid off loan 4913 Prorated rent ( also cash received) 172020 transfer to new property Selling expense 20746

Total 308000

New property : FMV 233157 Cash Given : 60974 Realized gain=308000-183333-20746=103921 Recognized gain = 110321+4913-60974-20746=33514 ( 1250 unrecaptured gain) New property basis= 233157

Wiles (talk|edits) said:

7 April 2014
Gain = $53,810 = $308,000 - $20,046 (exp's at sale) - $987 (exps paid while funds with QI) - $233,157.

It's the same as DougM #3, above, except, since then, you have provided this add'l info: $7,000 more exp's at sale & $987 exp's paid out of QI.

Ckenefick (talk|edits) said:

7 April 2014
Clarify? Like, maybe, put an example in a Reg?

Yeah, like one that is actually on point to what happens in actual practice. In Example 2 of the Reg, B himself gets $10k cash on 5/17/1991, but before B himself receives title to replacement on 9/4/1991 and before B himself remits the $10k back to C on 9/4/1991.

Stacie (talk|edits) said:

8 April 2014
Now I have both refunds from Federal and State. and I am pretty sure I did a right thing. If IRS audit, I can just give them these posts :)

The other preparer use $308,000 to calculate gain, that was the reason she calculated 60K more gain than mine, though it was a mysterious how she could treat all as L/T gain, without facing depreciation recapture.

Thanks all of your help, especially to Wiles , Doug, Ckenfick and all":), if you were Oregon, i would definitely buy you a dinner:):)

By the way, do you think restaurant parking lot improvement can been taken section 179? I know if improvement inside the building, it can ( 50% rule), but parking lot , is outside building.

Spell Czech (talk|edits) said:

8 April 2014
"...though it was [a] mysterious how she could treat all as L/T gain, without facing depreciation recapture." This would not seem mysterious at all if you were applying the unrecaptured section 1250 gain rules correctly.

If you're reporting any *ordinary income* from the "sale" of the real estate (the Section 1250 property) I am convinced that you've very likely misreported that gain. I see it as a Section 1231 gain, and that is *not* ordinary income. Is part of the gain from Form 4797 going straight to page 1 of the 1040 as ordinary income? If so, I think it's incorrect. I don't know how to say it politely, anymore: The depreciation part of the gain from the sale of real estate is not very often recaptured as ordinary income; it is *unrecaptured* and the entire gain should be reported as Section 1231 gain, part of which is "unrecaptured section 1250 gain".

Get an IRS publication and read up on section 1250 recapture and unrecaptured section 1250 gain.

Stacie (talk|edits) said:

8 April 2014
Spell, the gains were capital gain with ordinary loss ( sec 1245 )

Spell Czech (talk|edits) said:

8 April 2014
If that is the case, then I must've misunderstood your statement "it was a mysterious how she could treat all as L/T gain, without facing depreciation recapture" and I apologize that I came on as pushy as I did. Did you override Drake to get the gain from the sale of the real estate as long-term capital gain?

Ckenefick (talk|edits) said:

8 April 2014
I would be thinking we'd be looking at some gain, under Section 1231, along with some Unrecaptured Section 1250 gain "to boot."

Stacie (talk|edits) said:

8 April 2014
not, Spell, I didn't override anything. I did a excel sheet then allocated sale price to each one instead of group sales.

Sorry, I kept to treat depreciation recapture as ordinary income , en, I know it was wrong way to say.

Spell Czech (talk|edits) said:

8 April 2014
Stacie, if you reported *any* of the gain from the "sale" of this real estate as ordinary income, I think you very possibly have overtaxed your client.

Chris, should Stacie report all the gain from the sale of the real estate as Section 1231 gain, and part of it as unrecaptured section 1250 gain? Your description of what you "would be thinking we'd be looking at" is quite ambiguous. The unrecaptured section 1250 gain is also section 1231 gain, where I come from.

Ckenefick (talk|edits) said:

8 April 2014
Chris, should Stacie report all the gain from the sale of the real estate as Section 1231 gain

Yes...along with some Unrecaptured Section 1250 gain.

Spell Czech (talk|edits) said:

8 April 2014
No, Chris, not "along with" - that is what's misleading. What you want to say is "**including** some unrecaptured section 1250 gain".

Sorry if I seem cranky, but this thread is not helping anyone. The numbers won't stand still and the terminology is so sloppy, it's wrong.

Ckenefick (talk|edits) said:

8 April 2014
No, Chris, not "along with" - that is what's misleading.

That's why I re-iterated it...you know, "along with" - does along mean "beside" as in "along side" or "in addition to?"

Spell Czech (talk|edits) said:

8 April 2014
Maybe it does, maybe it doesn't; I don't know and I don't care. We should take the opportunity to misinterpret it away from the reader.

Spell Czech (talk|edits) said:

8 April 2014
"Some intelligent people showed up along with the tax accountants." Get it???

Ckenefick (talk|edits) said:

8 April 2014
Maybe it does, maybe it doesn't; I don't know and I don't care. We should take the opportunity to misinterpret it away from the reader.

Whose reading this thread anyway? The only thing half interesting in it is Wiles' Brain Teaser and the Reg she cited.

Spell Czech (talk|edits) said:

8 April 2014
Stacie came here to get some help with reporting a transaction, and we have made it more confused instead of less confused. Do you see where I'm coming from?

Nilodop (talk|edits) said:

8 April 2014
The only thing half interesting in it is Wiles' Brain Teaser and the Reg she cited. She?

Spell Czech (talk|edits) said:

8 April 2014
Oops. Chris would like to apologize.

Doug M (talk|edits) said:

8 April 2014
if you were Oregon, i would definitely buy you a dinner

you're on :)

Ckenefick (talk|edits) said:

8 April 2014
Why would I apologize, I thought Wiles was a female, not that I've ever given it that much thought...

Wiles (talk|edits) said:

8 April 2014
I have a little white dog. Part poodle, part something else. It's a male and wears a blue collar. Everybody calls it a she. I no longer correct them. Really, what is the point? It doesn't matter if my neighbor knows whether or not my dog is a male or female. He's fixed. So am I.

Ckenefick (talk|edits) said:

8 April 2014
What is Wiles - Last name, first name, nickname?

I just tell people that my dog is a Honey Badger.

Wiles (talk|edits) said:

8 April 2014
Ephesians 6:11

Ckenefick (talk|edits) said:

8 April 2014
“Put on the whole armor of God, that you may be able to stand against the wiles of the devil”

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