My understanding of the break stipulates that if you were to buy a property for 60k, and sell it for 90k, that 30k profit you made would be tax free “IF” you rolled it into a larger (more expensive) property.
My question is, to keep the break:
Would the new property have to cost at least more the original property, by a difference of the gain? (in the above example, would I have to purchase a new property for 120k or more)
-or-
Does the property simply have to cost more than the property that was sold? (could I, in the example above, apply that 30k to a 91k acquisition)
It’s actually more simple than that.
The 1031 exchange is for ‘like kind’ exchanges. The property you buy and sell can be of lesser or greater value / quality of the previous property (although property inside the US would be like kind, property outside the US would not be). The rule is that the cost of the new property must be of greater basis than the divested property.
Simply put - If you made 30k on the previous transaction you need to buy a property that costs at least 30k to do a full 1031 exchange. You can’t 1031 exchange a loss for instance.
www.irs.gov <---- go there and search for 1031 exchanges, it’s not really that complicated. There is a time limitation between the sale of the previous property and the new property. (90 days if I remember correctly but I could be wrong on that).
Please bear in mind that it’s not ‘tax free’ either. It’s tax deferred. You will pay taxes on it eventually you’re just deferring the final tax bill till a later time.
"Please bear in mind that it’s not ‘tax free’ either. It’s tax deferred. You will pay taxes on it eventually you’re just deferring the final tax bill till a later time. "
It could be tax free if you die and leave it to your heirs at a stepped-up basis.
Unless of course, your estate is large enough to get hit with the death taxes.
Dying- The Ultimate Tax Avoidance Strategy!
Thanks again, this forum is pretty cool!
(is saying thanks ok on here, or is it bad forum manners due to it bumping the post back to the front)
No, Mr_A, saying tahnks is fine…
Keith