1031 trade from IL to tx

General Real Estate Investing
1

  1. are there tax repocoutions(sp) when making a trade from IL toTX ?

  2. Can i buy three different,but like kind propertys with a 1031 from state to state?

  3. If i can buy three,can i pull one out without having a problem?

2

the only tax issue when doing 1031 from state to state is if you do a subsquent 1031 again, the state where property #1 is going to want their tax paid upon the sale of the replacement property (2nd in the chain).

an example, I sold a property in Calif and bought in a VA with a 1031. If I sell the VA property and do another 1031, I will owe the state of Calif their tax share on the gain from the original property in Calif. I’m not sure if all states are that aggressive about taxation, so your tax professional should be able to help you with respect to your specififc state’s tax laws.

as for the last question, it depends if the total value of the rpelacmeent properties is greater than 200% of the first property.

3

  1. As far as the IRS is concerned, you have no problem. As aak pointed out, some states do track interstate exchanges. GA does not even recognize an exchange when the replacement property is not located in GA.

  2. Yes. If you relinquish one property, you can identify and puchase three different replacement properties. Your only constraint is that the entire exchange must be completed within 180 days, and, the total value of the replacement properties must equal or exceed the net (of selling costs) sale price of the relinquished property.

  3. Depends upon what you mean by “pull one out” If you mean flipping one of the replacement properties, or moving into one as your primary residence, then you can “pull one out” but your exchange for that property will be disqualified.

4

Interesting… one advantage here is that IL has a high state capital gains tax rate vs Texas which doesn’t have a state cap gains tax…

Haven’t heard too many people getting tracked down state to state… especially if you are fully divested from that state.

JIC, is there a timeline that you guys would recommend as far as states tracking someone down?

Incidentally, if you pull out of one of the exchanges, it sounds like you would have ‘boot’ and that portion would be taxed.

5

Dave,

I believe GA has corrected the disparity and does not take the position that you cannot exchange out of GA anymore.

There are some states that attempt to track inter state exchanges, but most do a lousy job of tracking it.

Just a couple of thoughts.

6

So how do states track inter state exchanges? Especially if the taxpayer move out of the state in which the initial property (relinguished) was located in. In my case, I sold in Calif and bought on the East Coast. If move out of Calif prior to selling or further exchanging those replacement properties. My question is based upon not trying to avoid taxes but I have had previous experience with multiple states trying to tax my income due to the highly transient nature of my previous job. This would appear to be an analogous situation (i.e who has taxation priority—yikes, that’s a scary concept).

This would seem to be a topic of interest since a lot of investors (part. Calif) are doing out of state replacement properties now.

7

It depends on the agency. In many cases, it would only be detected under an audit, so it is the honor system. In other cases, the agencies share information. There are many that claim the California position is unconstitutional, but until someone challenges it on that basis and we see a ruling we will not know for sure.