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Tax Question - 1031 exchange Thank you!

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Tax Question - 1031 exchange Thank you!

Old 09-21-2018, 06:33 AM
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Default Tax Question - 1031 exchange Thank you!

Selling an investment property and will have ~$150k in capital gains. Basically $550k purchase price - built $30k in equity and should sell for mid 700's....

To defer taxes I wanted to put the cash into a "similar property" using a 1031 exchange. Can I do any of the following?

1) Use the proceeds to pay off my existing home mortgage (not an "investment" property - we live in it).
2) This sounds sketchy but I promise it is 100% legit -- Upgrade boats if boat is registered to an LLC/Charter company - in other words I would be investing in a business that would in turn be funding start-up costs for a new business....I am already planning on expanding my charter business for 2019 and would run it on my Blackfin and a buddys boat but I'd love to buy a bigger downeast boat that is better suited for chartering.
3) Buy shares of an existing PRIVATE company (family business - I have an option to buy out my two uncles who want to retire).

100% without a doubt will be talking to my tax accountant eventually - but she charges me money to do these things so I want to have a good idea of what I want to do before I go in there. She is also a friend and I know her son is getting married next weekend so I don't want to bug her for a couple weeks because I know she is stressed. I think #1 is "no" -- #2 is a legitimate business that I am starting next year and I actually need to buy a newer boat if I want to start bringing clients out..... #3 I dont really need to do because we were going to use company earnings to buyout their shares...

on #2 - I've never done anything shady in terms of writing off boat expenses blah blah blah - I know it is a red flag for audits and its not worth the headache. But my understanding is that a 1031 exchange is designed to defer taxes on investment dollars. In other words, the proceeds could be used to invest in a similar property, business, or land. It would be a rather large tax bill so i would like to avoid that...

Last edited by sammythetuna; 09-21-2018 at 06:50 AM.
Old 09-21-2018, 06:51 AM
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No to all.
Old 09-21-2018, 07:37 AM
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What Sprockets said. You can't take the cash. It needs to be held by a qualified intermediary. Take cash or unlike property and you have to take gains.
Old 09-21-2018, 07:41 AM
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I did a 1031. The rules were something like this.

You had to identify three investmnt properties within 45 days that you were interested in. You then had to close on one of those in 180 days.

I did it but I was not a fan. What if after the inspection you didn't want to buy either of those three?
Old 09-21-2018, 07:45 AM
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no you can't do that. I am a developer. You have to ID the property within x days and close within x days. Basically you are rolling your basis and gain into a new property.
Old 09-21-2018, 07:46 AM
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Pretty sure its NO. NO. NO.

1031 can be tricky, talk to an expert. Not all "tax accountants" are well versed (no disrespect intended to yours). You must follow the rules. Don't touch the cash. You can use an intermediary to do a deferred exchange. Most likely will need to buy another building. Timing is important so don't wait for the wedding to be over.
Old 09-21-2018, 07:53 AM
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negative ghost rider (to all ideas)
Old 09-21-2018, 08:20 AM
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Did you depreciate the property every year since you owned it? Also do you have any passive losses accrued?
You may not have to pay as much in taxes as you think with a good account. Especially if you never depreciated the property and have passive losses.
What my account told me and I believe it still stands is if you make 150K or above on your personal income your losses on any property are not reflected on your personal taxes. So they should be accruing and kept track of. So when you sell you can use those losses towards capital gains.

Is this still the case guys?
Old 09-21-2018, 08:38 AM
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1031 exchange rules

45 days to identify a new property(ies), 180 days to close.
Old 09-21-2018, 08:42 AM
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Originally Posted by swampr View Post
Pretty sure its NO. NO. NO.

1031 can be tricky, talk to an expert. Not all "tax accountants" are well versed (no disrespect intended to yours). You must follow the rules. Don't touch the cash. You can use an intermediary to do a deferred exchange. Most likely will need to buy another building. Timing is important so don't wait for the wedding to be over.
oops double post. Drinking and posting.
Old 09-21-2018, 08:43 AM
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Originally Posted by swampr View Post
Pretty sure its NO. NO. NO.

1031 can be tricky, talk to an expert. Not all "tax accountants" are well versed (no disrespect intended to yours). You must follow the rules. Don't touch the cash. You can use an intermediary to do a deferred exchange. Most likely will need to buy another building. Timing is important so don't wait for the wedding to be over.
Yep this
You cant do any of what you asked. Remember " like kind"
Old 09-21-2018, 08:44 AM
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You'll also have to use a 1031 intermediary to handle the transaction for you. You can't ever have access to the sale proceeds. So if you're going to do this you need to get some referrals on one of these guys, and also start your identification process of three potential properties. If all three fall through you'll have to pony up and pay the capital gains tax.
Old 09-21-2018, 08:58 AM
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Boats no longer eligible for 1031 exchange under new tax law
Old 09-21-2018, 09:12 AM
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Originally Posted by Marlin308 View Post
You'll also have to use a 1031 intermediary to handle the transaction for you. You can't ever have access to the sale proceeds. So if you're going to do this you need to get some referrals on one of these guys, and also start your identification process of three potential properties. If all three fall through you'll have to pony up and pay the capital gains tax.
Im settling on the 1st and doing the same thing. Before you do anything you have to find who is going to handle the 1031 exchange. They will have all the answer's. There is one other option that my 1031 guy is familiar with but seems a little cool about. That is that you can invest in a 1031 fund. The fund will use your money to invest in property.The fund will handle tenants. The fund will handle maintenance.
The guy Im using is as follows. : George 609-398-1031 info@1031esi.com He knows everything and will answer all your questions. He is based out of Florida.
Old 09-21-2018, 09:57 AM
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1031 = Like-kind exchange. Must be like-kind, or similar in nature.

Also, if you have any inclination to do anything like this, you MUST speak a qualified tax account or 1031 intermediary IMMEDIATELY as the rules are very specific as the timing and use of funds.
Old 09-21-2018, 10:03 AM
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Originally Posted by bassriver View Post
Boats no longer eligible for 1031 exchange under new tax law

haha was it ever?
Old 09-21-2018, 10:07 AM
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Originally Posted by sammythetuna View Post
haha was it ever?
If it was I should of went that route. I'd have a Freeman.
Old 09-21-2018, 10:09 AM
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Thanks for the responses. Sounds like a "hell no" -- I figured this was the case... but trying to think a bit creatively here. I haven't even accepted an offer on the place. I have a private transaction buyer interested so I am very early in the process. I also have tenants in the place so the closing will have to wait until their lease is up (spring) so the time crunch is not there. We do have a stepped-up cost basis on the property so the actual (cash) gain will be around 150k but the tax gain won't be nearly that much..... still hate paying them!

So just curious what type of property would be considered "Like" ? Another condo only? or would ANY property be counted? Just trying to think of ways we could defer this tax bill....
Old 09-21-2018, 10:17 AM
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Originally Posted by barrell View Post
Im settling on the 1st and doing the same thing. Before you do anything you have to find who is going to handle the 1031 exchange. They will have all the answer's. There is one other option that my 1031 guy is familiar with but seems a little cool about. That is that you can invest in a 1031 fund. The fund will use your money to invest in property.The fund will handle tenants. The fund will handle maintenance.
The guy Im using is as follows. : George 609-398-1031 info@1031esi.com He knows everything and will answer all your questions. He is based out of Florida.

Old 09-21-2018, 10:19 AM
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Depending on your income, you might be better off just paying the tax now. Rates are low, cap gains tax is capped. Sounds strange but it might be better to pay tax now. As usual, it depends.

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