1031 exchange, refinance, second transaction

Dear 1031x:

If I sell a property and buy another one with a 1031, spend all the cash, and take the same amount of loan, no taxes are to be paid, this is correct I suppose.

However, in order to be a successful 1031, the new property should be investment property, and to be kept at least a year and one day.

Am I still correct ?

 

1. What if I sell  this newly bought property, after one year and one day, for the same amount of money that I bought it for, and not re-invest ?

 

2. If I sell it for more than I bought it for,  and wish not to re-invest, on what part do I need to pay taxes, if I keep it for more than one year and a day ?

 

Thanks for your advice.

 

Dear Mr. B:  Let me give you a simple example to explain: 1) You buy for $100K and one year later sell for $120K.  Your gain is $20k.  Tax will be paid on this $20K unless you 1031x.  You do a 1031x and buy a new property for $120K.  Soon thereafter, for an independent business reason,  you take out a new mortgage for $100K.  This will be non-taxable borrowed money; not income.  You wait another year and sell for $130K.  You do not do a 1031x this time.  You will be taxed on all the gain.  That is the $20K you made in the first transaction and the $10K you made in the second transaction.  1031 is a deferral method only.  I hope this helps.  Sincerely,

Steve Hickox
Attorney / President