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Capital Gains Tax - sale of investment property

1,613 Views | 7 Replies | Last: 7 yr ago by Bobby Light
AggieDruggist89
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AG
My understanding is that through 1031 exchange, you can prevent capital gains tax by reinvesting in a similar property within 180 days.

Is it possible to reinvest in multiple properties instead of one; if capital gains is $200K, use it for down payments of $50K on 4 properties each?

Thank you,
WoMD
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Yep. You just have to have all your prospective properties formally declared early on in the process. One month, I believe?
AggieDruggist89
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AG
Thank you,

In this scenario, is this a tax deferment?
WoMD
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Yep. You can keep doing this until you die. But if you sell and don't do another exchange you are responsible for all taxes. Also, if you do this in another state and sell from a previously held property in California (which I think you're at), you will eventually be responsible for paying the California taxes on it.
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Bitter Old Man
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AG
One of the very specific rules is that you must use an intermediary to handle the proceeds, once they touch your account, they are out of the 1031 game. Many people just sell their property and decide they are going to do 1031 after it closes, but they find out they cant.
bkag9824
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AG
Along the same lines...

How does one handle the transfer of more than one asset into one asset?

Sell three houses & transfer to one property.
erin2003
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AG
There are companies that specialize in like kind exchanges that can help you with the process. Basically, you sell the 1st property, transfer the proceeds to an escrow account, and then use those funds buy your new properties. You just have to make sure all properties are truly like kind under the rules (this is fairly easy for real estate), and make sure that at no point between the transactions that you have control of the funds.
Bobby Light
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I've done 20+ 1031s. My advice:

- Consult your tax attorney and CPA as quickly as feasible to discuss the relinquished property characteristics.
- make sure you can prove you acquired and held the relinquished property for investment (ie: no intent to flip).
- know what you need to replace (debt and equity components).
- follow the timelines to ID and acquire replacement property(ies)
- Use a QI. Should cost around $750.
- Know the ID rules (up to 3 regardless of value, over 3 if aggregate value doesn't exceed 200% of relinquished value, no cap on value of you close 95% of the value identified)

Happy to answer any other questions.
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