1031 exchange holding period

How long do I have to keep a 1031 in place in order to pay least  taxes? Example- say I am 9 months into the 1031 and I find a property of  equal/greater value that I want to buy, I roll the 1031 into the  replacement property, what impact does that have at tax time?
 Thanks-F

Dear F:  There is no holding period on the replacement property.  If your investment objectives are met by reselling the replacement property and performing another 1031 exchange then all taxes will be deferred again.  There is no limit on how many times you can do a 1031 exchange as long as all properties are held for investment.

Steve Hickox
Attorney / President

1031 exchange and combining LLCs

Dear H: Can you have 4 properties all same value of 350k but Titled in 2  LLC`s merge all together to buy a parcel of land for 1400K. Will that  work? or do I eliminate one of the LLC and Make all properties have the  same LLC. and will that work.

Dear H:  In your example you could have the two LLCs become co-owners of the new property.  Their percentage ownership would be based on their percentage contribution.  Does this work?  Please tell me how many owners there are of each existing LLC and are the owners the same in both.  This will help me provide more help.  Sincerely,

Steve Hickox
Attorney / President

1031 exchange and carried over basis

Dear 1031x:  In regards to an already successful  deferred exchange, if the relinquished property has been fully depreciated  doesn't this mean that the basis has been  driven-down to zero? Since the basis of the old property is transferred to  the new property, is there any form of depreciation for the new property?  Also, is there any depreciation recapture?

Dear S: 1)  If the relinquished property has a zero basis when sold then the replacement property will only have a basis equal to the amount that the replacement property exceeds the relinquished property in value.  For example is you sell a zero basis property for $200K and 1031x into a replacement property with a value of $250K then the basis for the replacement property will be $50K. 2) If you do a valid 1031x then there is no recapture of depreciation.  The recaptured depreciation tax liability is also deferred.  Let me know if you need more.  S.

Steve Hickox
Attorney / President

1031 exchange inherited property

Comments: I received a quit claim deed to my parents home in 1998.  They  continued to live in the house until they both passed away (father 2001 and  mother 2005.  I sold the house in 2005 for 88000.  The value of the  house  in 1998 was 68000. can I use that figure to capital gains?

Dear D:  Unfortunately your assumption is probably incorrect.  When a property is gifted the person receiving the gift receives the  tax basis of the person making the gift.  It appears to me that your parents gifted you the property thereby transferring their basis in the property to you to.  Your basis would not be the FMV on the date of the gift.  Instead it would be whatever their basis was.  Sorry.  S.

Steve Hickox
Attorney / President

1031 exchange with brother

Hi, my brother and i own two properties, 50% each.  the value of  the properties is the same.  we want to 1031 the properties, so he ends up  with one and i end up with the other, no money exchanges.  Are there any  forms to fill out other than the irs forms, or procedures we must follow? thanks, R.

Dear R:   You should be able to just trade deeds with your brother.  Then each of you must own the property for two years before either of you sell.  Also you will both have to report the 1031x on your tax returns using form 8824.  What you will not need to do is use our services except for this advice.  Sincerely,

Steve Hickox
Attorney / President

1031 exchange state income tax

Dear 1031x: If a property is sold in a State with State income tax, but then a replacement property is purchased in a State without income tax, how does that affect a 1031 exchange?

Dear B:  Almost all states defer their state income tax if you do a valid 1031 exchange even if the new property is located elsewhere. I hope you will chose us for your 1031x.

Steve Hickox
Attorney / President

1031 exchange and inherited property

My brother, sister and I sold our late parent's home.  My sister  resided in the house prior to sale.  My brother and I did not.  My sister  should be exempt from tax liability since she resided in the house for  more than 5 years.  What are the tax ramifications to myself and my  brother?  Please advise.  Thanks,  C

 

Dear C:  When a person dies the heirs receive their property with a new basis equal to the FMV date of death.  This "stepped up" basis eliminates income tax for the heirs if they then sell the property.  That is probably the case in your situation.  However, if a longer period of time has passed and the property has increased in value since your parent's death then income tax would have to be paid on the increase.    Let me know if you need more.

Steve Hickox
Attorney / President

1031 exchange and principal residence

Dear 1031x: Can my son 1031 commercial property in exchange for my home (same  value). then rent the house back to me for 2 years, then gift the house to me at the end of the 2 years?

Dear L:  The IRS does not allow an exchanger to purchase from a related person unless the related party does a 1031 exchange or unless the gain recognized by the related party is greater than the gain deferred by the exchanger.  Neither of these are true for you.  Moreover, the IRS requires that both old and new properties be held for investment.  Because the gift back to you is planned it is very hard to argue that the home is held for investment by your son.  Finally, there are likely to be gift tax issues for your son when he gifts back to you.  In short, I cannot recommend this strategy to you.  Sincerely,

Steve Hickox
Attorney / President

1031 exchange and depreciation

Question: I bought property B by refinancing property A, both  properties are rental income, can I increase the depreciation value of  property A?

Dear P:  The amount of debt on a property and the basis of that property have no relationship to each other.  Your refinance will NOT increase your basis, and therefore will NOT increase your depreciation allowance. Sincerely,

Steve Hickox
Attorney / President

1031 exchange and transfer to LLC

Hope you had a good holiday.   Quick question for you:  I am thinking about transferring two properties, both acquired in 1031 exchanges, into an LLC.  Do you know of any downsides or pitfalls in such a transfer? Many thanks, K.

 Dear K:  Transferring your replacement property into an LLC of which you are the sole member is perfectly ok.  A single member LLC is a "disregarded entity" for tax purposes.  Therefore transfer into it will not effect the 1031x.   If you are planning to transfer your property into an LLC with other members please contact me further.  Sincerely,

Steve Hickox
Attorney / President

1031 exchange and increasing basis

Dear 1031x: If a residential rental is fully depreciated, assuming  everything else is equal (Property tax, income, etc.) does it make sense  to exchange into a different rental to gain new depreciation?

Dear S: When you do a 1031x you carry forward the old basis into the new property.   Therefore you do not "reset" the basis of the new property at its purchase price.  1031x allows you to change the size (larger), kind (any kind of real estate works) and location of your real estate investment.  But you should only sell and repurchase using a 1031x if you think your investments goals are being furthered. S.

Steve Hickox
Attorney / President