1031 question

I am new to real estate investing and to this forum & have a question. I sold a property for $110,000, putting $65,000 in escrow. I am buying one piece of property, using $57,000 of it. If I don’t buy any other property, do I just pay tax on the $8,000 that’s left?

This is a great forum, and I’m sure you’ll be hearing from me often !!


Howdy CP23:

You are too late to do a 1031. You must use a company approved by the IRS to do the exchange and not just as escrow company. If you had done that you could have only paid tax on the small amount of cash you received provided the loan you gave up was the same size as the new loan or smaller. You have to trade up or even in equity and debt or you will have boot to pay tax on.

I used the wrong terminology, I did use an approved 1031 intermediary, not an escrow company. The replacement property’s value is less than the sold property, so I would pay tax on $8,000?


Howdy Cathy:

It is still unclear. What was the purchase price of the new property?

If I am reading it correctly above $57k.

Yes, that’s correct, $57,000 for the first. $65,000 is with the QI, and I sold my other property for $112,000. That would leave $8,000 with the QI.

Howdy Cathy:

You need to be a property for $112K plus including mortgages. Your exchange company should have explained this to you up front. Right now you have $8000 available but have only bought $57K . Perhaps you can identify another $55K property and buy it with a down payment of $8K. This will give you an even exchange and defer the capital gain.