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Home sale and cap gains

Old 10-04-2010, 06:43 AM
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Default Home sale and cap gains

We are selling our primary residence- a farm we have owned for 18 years. We will realize a profit of around $900,000. We intend to move about 100 miles away and purchase a less expensive property and have our 3 kids and their spouses build houses on the new property. What is the best (legal) way to minimize our tax liability.
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Old 10-04-2010, 06:48 AM
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I believe the first 500K of profit is nontaxable. After that, pay up.

Farms, if its really a "farm" might have some rules I am unaware of. Consult an expert.
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Old 10-04-2010, 06:54 AM
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Yep, $500,000 if married. Not sure how your county handles it but around here if you have been getting the property tax break for having a "farm" they go back 5 years and collect the difference in property taxes.

Edited to add: Do it before the end of the year if possible because nobody knows what the gains tax will be next year.
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Old 10-04-2010, 06:56 AM
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Not sure if a 1031 exchange is possible because it is your primary residence in addition to a farm but might be worth looking into.
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Old 10-04-2010, 06:58 AM
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As stated before, the IRS rules that most of us use don't necessarily apply to farms, timberland, etc.
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Old 10-04-2010, 07:42 AM
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1031 does not apply to a personal residence. If it was a working for-profit farm, you "might" be able to segregate the farm portion from the residence on both properties but that is a longshot. I don't know if there are any special rules related to farmland.

With CG rates at a max of 15% this year, you would have a gain of $400K less selling costs. Perhaps you have some unrealized losses in a stock portfolio to offset some of the gain. The only way I'd defer the transaction to 2011 would be if the 15% rate is extended to 2011 for taxpayers at all income levels.
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Old 10-04-2010, 07:50 AM
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500k is nontaxable
Take 400k from personal and loan to a business, buy lots of stuff and write it off.... properties, cars, boats, etc....

Sonds good to me......

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Old 10-04-2010, 08:06 AM
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Thanks folks.
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Old 10-04-2010, 08:15 AM
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Originally Posted by thermasystems View Post
500k is nontaxable
Take 400k from personal and loan to a business, buy lots of stuff and write it off.... properties, cars, boats, etc....

Sonds good to me......




This will be IRS response

Not much you can do, first $500K profit is non taxable on sale of residence, the rest is taxed at capital gains rates which are really very low RIGHT NOW but who knows what will happen in 2011

Not much else you can do other than make sure you have taken into account your purchase price and improvements over the years and also sales fees and closing costs
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Old 10-04-2010, 08:36 AM
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Originally Posted by tprice View Post


This will be IRS response

Not much you can do, first $500K profit is non taxable on sale of residence, the rest is taxed at capital gains rates which are really very low RIGHT NOW but who knows what will happen in 2011

Not much else you can do other than make sure you have taken into account your purchase price and improvements over the years and also sales fees and closing costs
If he "profits" $400,000, he will have to pay $60,000 in taxes. And you think this is low? Glad your not the President
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Old 10-04-2010, 08:50 AM
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The smart and smartazz answer is, "can you spell CPA?".
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Old 10-04-2010, 09:04 AM
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Yea its to late now ,when i bought my farm i did a 1031 exchange on the whole prop 127 acres then sectioned 11 acres into home site , so now i can sell house prop seperate from farm prop.If some one buys your prop and keeps it in a farm then no one pays residental taxes.
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Old 10-04-2010, 01:25 PM
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Originally Posted by twobyfour View Post
If he "profits" $400,000, he will have to pay $60,000 in taxes. And you think this is low? Glad your not the President
Well...... I am a right wing conservative neo nazi tea party militia man blah blah blah...

and if I made $900,000 and only had to pay 60k..... I would be dancing in the streets...

He is only taxed on 400k, but made 900k.

And it could be worse.
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Old 10-04-2010, 01:52 PM
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I see your point, but the capital gains tax itself is just BS.
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Old 10-04-2010, 01:57 PM
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Originally Posted by twobyfour View Post
I see your point, but the capital gains tax itself is just BS.
Definitely....

So is our ENTIRE tax structure.

I am all for a flat/fair tax with a higher sales tax.
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Old 10-04-2010, 02:20 PM
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You might be able to segregate the sale into two pieces, one for the 11 acres and residence and the second for the "farm" property. Then when you purchase the new property, use the Sec. 1031 for the farm property to purchase the acreage you will eventually be letting the kids build on and use it for agriculture purposes for a couple of years, if you can, and then let the kids build on it. Or, you could do the 1031 on the "farm" property and purchase the property the kids will be building on and rent it to them. You don't have to "trade" farm property for farm property, just property used for trade or business or for investment for property used for trade or business or for investment. You might be able to get the buyer to make an allocation on the purchase price so the $400K of profit goes to the Sec. 1031 property and not have to pay any tax at all, if all the pieces fall into place properly.

PM me if you would like to discuss further.
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Old 10-04-2010, 03:19 PM
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You guys are brave if you do a 1031 now. A large 1031 intermediary in my area went bust and hung the sellers/ customers. Lost the proceeds of the sales, could not complete the purchases, so sellers had to pay taxes on the gains, even though the proceeds of the sales were lost. Nightmare!

Tax rates are going up, so if it were me, I'd pay now instead of deferring to future/higher rates. But that's just one opinion.
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Old 10-04-2010, 03:29 PM
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GWcpa

would that have been LandAmeica or one of its subs?
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Old 10-04-2010, 05:36 PM
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Yes, that is correct. Really not sure if the sellers recovered all of their investment/proceeds or not, but it is a cautionary tale. Last I heard/read they had not and IRS deadlines were not being extended.

Last edited by GWcpa; 10-04-2010 at 06:19 PM.
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Old 10-04-2010, 06:02 PM
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If I spun off the bulk of the property now to purchase the new land and waited 2-3 years to sell the house and move....how would that impact me?
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