1031 exchange with refinance

Dear 1031x.com: What are the tax consequences in the following scenario:
> 1-through 1031x purchased replacement property
> 2-sometime after the exchange cashed out by obtaining a mortgage. Used  proceeds to purchase other properties, unrelated to the subject property.
> 3-sold the property in a new 1031x and paid off the loans.
> Thank you

Dear M:  As I understand it you did 1031x #1, then did a cash out refi of that property, then you did 1031x #2 of the property the you just refinanced.  There is no current tax liability from anything that you have done so far.  Sincerely,

Steve Hickox
Attorney / President

1031 exchange no income from property

Dear 1031x.com: I bought a lot in a seaside resort community in 1993 for investment. Built a house on the land in 1998 with a partner. The house has never been rented or occupied except for quarterly maintenance (2-3 days each visit). Did not want to rent the house due to bad rental experience with other property. We are talking about selling it now that home prices have substantially
increased which was our original intent. I have some documentation (utility bills, gasoline purchases – the house is located 6 hours from principal residence) to substantiate the few days that the house has actually been
used. Can we do a 1031 exchange of this home?

Dear D:  There is no requirement that you earn any income on your investment property.  Many investment properties are held exclusively for future appreciation and not for current income.  Everything that you state indicates that your intention from the beginning was to hold this for investment.  I can confidently state that assuming all statements to be true, your transaction is 1031 eligible.  I hope you will chose our company for this service. Sincerely,

Steve Hickox
Attorney / President

1031 exchange, improvements, principal residence

Dear 1031x.com: I have two questions: 1.  How do we account for improvements to the propert?  What is  included/excluded?  What records do we need. 2.  If we decide to live in the property for two years, we understand that  you only need to be there one half each year.  Is this correct?

Dear B:  Improvements fall into one of two catagories: 1) repairs, or 2) capital improvments.  Repairs are minor and are dedcutible expenses of operating investment property in the year they are incurred. Capital improvements are more major and are not deducted in the year incurred; instead their cost is added to your tax basis.  Therefore, capital improvements increase your annual depreciation allowance, and decrease your gain, if and when you sell.  Sometimes the distinction between a repair and a capital imrpovement is difficult to make.  In answer to your second question, in order to qualify for tax exemptioon under IRC section 121, you must live in and own the property for two years.  You can only have one principal residence at a time.  Usually your principal residence is the place where you spend the majority of your overnights.  So, yes, if your spend at least 50% of your night at your principal residence and otherwise treat it as your principal residence you will qualify under 121.  I hope this helps. Sincerely   

Steve Hickox
Attorney / President

1031 exchange and new mortgage amount

Quick question. My understanding from reading the 1031x literature is that the new mortgage on the replacement property has to be the same or larger than the amount of the mortgage left on the existing property. For example, our original mortgage was $220,000 and the balance as of today is $177,000. The mortgage on the replacement property has to be $177,000 or larger. Is that correct?

Thanks,P

Dear P:  To fully defer taxes in a 1031 exchange you must trade equal or up in value AND equal or up in equity.  As a practical matter that often means that you are also trading equal or up in mortgage amount.  However, the IRS always allows the taxpayer to add cash into the exchange and reduce the amount of mortgage.  I hope you will choose 1031x,com for your next exchange.  Sincerely,

Steve Hickox
Attorney / President