1031 Exchanges and Capital Gains Tax

tag:blogger.com,1999:blog-166481182008-02-22T20:27:59.035-08:001031 Exchanges and Capital Gains Tax1031ExchangeBlogBlogger73125tag:blogger.com,1999:blog-16648118.post-7425659262276938872007-10-29T09:59:00.001-07:002007-10-29T09:59:23.994-07:001031 exchange, convert to principal residence <DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x.com,  If a property was initially bought as an investment using a 1031  exchange method, and now will become an owner occupied residence due to a  divorce, how does this affect the deferred tax status, both now and if the  same property is sold for another owner occupied residence?<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear Mr. A: You have 1031 exchanged into a property, and now, due to a divorce, have converted the use of the property from investment use to principal residence use.  Your tax treatment going forward is as follows:  After you have lived in the property for two years most of the gain realized upon sale will be tax exempt under IRC section 121.  Under this code section you must have owned and lived in the home for two out of the last five years in order to qualify for tax exemption.  Once you qualify for this exemption  only one piece of the realized gain will NOT be tax exempt.  During the time that this property (or the preceding property which was part of your 1031 exchange) was held for investment, you probably took a depreciation allowance.  Any depreciation taken between May 1995 and the date it was converted to principal residence (the date depreciation allowance stops) will be recognized (taxed) upon sale of the property even if the rest of the gain qualifies for tax exemption under IRC section 121.  Call with questions, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:048201c81a4d$07054910$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-27812458732520989472007-10-29T08:58:00.001-07:002007-10-29T08:58:34.883-07:00owner carry mortgage, boot, 1031 exchange<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x.com: As an incentive to buyers of my exchange properties I would like to offer to take back a 2nd. My properties all have very low basis and I understand my 2nd trust would be treated as boot.</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Say the property was initially acquired by me for $120,000 coming from another property that I sold. The acquired property has a basis of only $20,000 due to many years of depreciation and exchanges. Say I sell it for $300,000 and the mortgage to be paid off is $100,000. I take back a 2nd in the amount of $10,000. I would replace the property with an exchange property of equal or greater total price and debt.</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Is there a way to not end up paying $10,000 in taxes out of the $10,000 boot? </FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Maybe I can add $10,000 of my own to increase what I invest in the replacement property. Maybe I can take on a larger mortgage and more expensive replacement. I have no idea how to calculate the tax on the boot or what are my options, if any, to minimize the tax on the boot. Can you tell me my options? Even more of a challenge: can you explain it so I can understand it? </FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Thanks, C</FONT></DIV> <DIV> </DIV></FONT></DIV> <DIV><FONT face=Arial size=2>Dear C:  I am going to use your numbers when replying to you.  Because the size of the owner carry is small ($10K)  I am going to suggest a specific strategy.  Instead of carrying back the mortgage, raise $10K of cash from another source.  Bring it to closing and lend it to your buyer.  Now the $10K will come back to you at closing and will be part of your 1031 exchange.  In this strategy you will not have any boot.  If you carried back a mortgage your tax basis in the carry back would be ZERO.  With my strategy your tax basis in the $10K mortgage is $10K.  With my strategy when you are paid back the $10K you pay no tax on the principal.  You only pay tax on the interest.  Call with any questions. </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:043b01c81a44$87f1d3d0$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-33479133843023357122007-10-16T11:23:00.000-07:002007-10-16T11:26:52.795-07:001031 exchange child as tenant<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x, My mother is 73 and selling her house that was 75% rental. She lived in 25%. She will be receiving 2.3 million. She'll be paying off a mortgage<BR>> of $250,000. After closing costs she'll be left with around 1.9 million. She bought it in 1967 for $23,000. So there really is no cost basis. She is thinking<BR>> about buying 3 properties, putting $200,000 down on each and having her 3 children pay rent to cover the remaining mortgages on the properties. Can these be 1031 exchanges? Are relatives allowed to be tenants in 1031? Also we were wondering, considering her age would it make sense tax wise for her to buy a condo for herself or just rent? Thank you,</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Dear C:  I really like the plan that you propose.  The children, tenants, can each pick out a home that they want to live in and one day receive by inheritance.  Then they can pay rent to Mom providing her with income as she gets older.  This is a perfectly valid 1031x.  Children can, and often are, tenants in their parent's property.  However, I urge each of you to pay a fair rent to Mom.  If the rent is not close to what it ought to be then the 1031x could be challenged.  However, the tenants (children) could take on additional responsibilities, like paying property taxes, insurance and upkeep on the properties, thereby lowering their rent payments.   As far as Mom buying a condo or renting, at her age, I kind of like the idea of her renting.  She can thereby keep 25% of the sales price (the part she lived in) in the form of cash.  This might give her a comfort level that people her age often like.  I want you to use us for your 1031x.  How can we earn your business?  Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:03b101c81021$b850fe20$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-88717531477936427812007-10-12T08:26:00.000-07:002007-10-12T08:29:44.480-07:001031 exchange calculate depreciation<DIV><FONT face=Arial size=2><FONT face="Times New Roman" size=3>Dear 1031x.com: I'm interested in the 1031 exchange on a property I'd like to  sell in Seattle.  How do I find out the depreciation on my house?</FONT><BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear C</FONT><FONT face=Arial size=2>:  Depreciation is taken on improved property gradually and year by year.  Usually the annual depreciation allowance is the same every year.  However, there are accelerated depreciation schedules that are sometimes used.  The only way for you to determine your accumulated depreciation is to examine your past tax returns.  Look back at the last several years.  If the depreciation taken is the same for each year then it is a pretty safe assumption that the same depreciation was taken every year since you acquired the property.  Multiply the annual depreciation taken by the number of years owned and you will have you total accumulated depreciation.  Please note the when a property is acquired or sold during a year you usually get less than a full years depreciation allowance.  Please choose us for your 1031 exchange.  Sincerely,</FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:010e01c80ce4$52b1f410$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-72311051121115134832007-10-08T09:02:00.000-07:002007-10-08T09:04:52.416-07:001031 exchange beneficial interest in trust <DIV>Dear Steve: The reason you would want to exchange the beneficiary interests is for<BR>anonymity.  Bill puts out a lot of information on wealth preservation.  Of<BR>course when you do this you would want to assign another successor trustee<BR>to take care of the respective trusts.  The trust do not have a separate tax<BR>ID number.  They file under the individual Social Security number.  In the<BR>state of Washington there's a lot of nice things that can be accomplished if<BR>you just exchange the beneficiary interests leaving the trusts in place.<BR>For one thing it's a very simple transaction.  You don't have to have escrow<BR>as long as the properties are free and clear.  Bill said that he exchanged a<BR>property like this himself.  I'm just wondering if he's the only one in the<BR>world that does anything like this.  Or is he creating a tax liability he<BR>does not know about.  Or if he's full of hot air.    Thanks, Brad<BR></DIV> <DIV>Dear B: I  appreciate all of the additional information.  These trust appear to be disregarded entities.  You describe the other benefits of swapping beneficial interests.  As long as everyone is comfortable closing without escrow, then I see no reason not the exchange beneficial interest in the trust, trade trustees, and rewrite the trust documents to suit yourselves.  This would in fact be two 1031 exchanges from a tax reporting standpoint.  Is there a trust registration process in WA?  If so then the transaction might need to be reported somehow in WA.  That would be the case in CO.  Remember to review the existing trust documents and make that they can be freely amended.  You don't want to take over the beneficial interest in a trust that cannot be amended to suit you.  Sincerely, </DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:020401c809c4$94f91150$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-57620798668550262452007-10-08T08:28:00.000-07:002007-10-08T08:30:49.758-07:001031 exchange beneficial interests in trust<DIV><FONT face=Arial size=2> <DIV>Dear Steve,<BR>you asked me to e-mail you the scenario<BR>here it is:<BR>Property A is owned by Mrs. A., an older woman.  (Actually she owns the<BR>beneficiary interest in a trust)  Property B and Property C are owned by<BR>me(Mr. B).  Property A is in a trust with Joe trustee as the trustee.<BR>Properties B and C are in another trust with David as the trustee (my wife<BR>and I being the sole beneficiaries).  The only thing in these trusts is the<BR>subject property.  Property A's value is conservatively $400,000.<BR>Properties B and C are worth conservatively $200,000 each.  Can we just<BR>switch the beneficiary interests in these trusts and count that as a 1031<BR>exchange?  Would the trust not be a disregarded entity for tax purposes<BR>because it was owned by individuals?<BR></DIV> <DIV>Dear B:  I am not sure why you think that it is a better idea to swap beneficial interests in the trust rather than have the trust swap properties.  To me it makes much more sense for the trust to swap properties rather than swap beneficiaries.  Swapping beneficiaries does not make sense to me.  If you did that you would have "Joe" as you trustee and the elderly woman would have "Dave" as her trustee.  This makes no sense to me.  As far as disregarded entities is concerned I would like to know about each trust.  Does either trust have a separate tax ID number, and file a separate tax return.  I still think that the best thing would be for the trust to swap properties with each trust doing a 1031x.  I hope we can help with this.  Sincerely, </DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:01e001c809bf$d3093a60$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-55845216332983968942007-10-04T09:34:00.000-07:002007-10-04T09:37:11.083-07:001031 exchange combined with 121 exemption<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>>Dear 1031x Comments: I have what appears to be a somewhat complex situation.  My wife  and I bought our home in 2003 (first home).  It's technically a triplex,  we live in the front 2/1 dwelling, and across the driveway is a separate  dwelling that is split into two studio rental units.  I've gotten a job  offer in a different city, so we are considering selling.  We bought for  $765K, and the prop is worth somewhere in the neighborhood of $1.2mil now. </FONT></DIV> <DIV><FONT face=Arial size=2> Here are my questions:<BR> 1) What is the most appropriate method for calculating the portion of the <BR> gain attributable to the rental units?  Our house in approx 1000 sq ft, <BR> and each studio is approx 330 sq ft.  Remainder of the lot (approx 1200 sq <BR> ft of yard and parking) is used exclusively by us.  According to the tax <BR> records from when we bought, of the total $765K purchase price, land value <BR> was $710K and bldgs only $55K.  I think a good argument can be made that <BR> the investment portion is the sq ft % of the total land, i.e. about 23%. <BR> What do you think?<BR> 2) In July, one of our tenants moved out and we took over occupying that <BR> unit (we'll call it Unit A).  We use Unit A as part of our principal <BR> residence, mainly as a guest room for my mother.  Unit B continues to be <BR> rented out.  If I hadn't received the new job offer, we planned on keeping <BR>this arrangement indefinitely.  What are the tax consequences of having <BR> done this?<BR> 3) Is the gain attributable to Unit A subject to the 121 exclusion?  A <BR> partial exclusion for the time we've occupied it, since the move is <BR> "unexpected"?  What if we hold off on selling our house (and don't buy a <BR> new house in the new location and rent instead) and keep possession of <BR> Unit A (without renting it) until we reach the 2-year threshhold?<BR>4) Does it make sense for us to do a 1031 exchange for the investment <BR>portion of our property by buying rental property elsewhere?  If you think <BR>our current occupation of Unit A doesn't meet the requirements for the 121 <BR>exclusion for the gain attributable to Unit A, would it otherwise qualify <BR> for 1031?  Or do we need to rent it out again for any length of time <BR> before we can do the 1031x?<BR> Appreciate and guidance you can give me.  Thanks!</FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Dear S:  Yes because of your dual use, change in use and change in place of employment your tax question is a bit involved.   Yes you can perform both a 121 tax exemption on the larger part and a 1031x on the smaller investment part.  As far as the percentages assigned to each use any reasonable basis for the division between principal residence use and investment use is OK.  However, you must be consistent historically with currently.  What I mean is that you cannot claim a larger percentage use for investment during your ownership period and a smaller one at the time of sale.  EXCEPT in your case there has been a change of use on Unit A.  Because you are moving for a new job you will be able to claim the principal residence portion AND on unit A all as tax exempt under IRC section 121.  Then you will have a small gain attributed to unit B.  This gain you can 1031 exchange or pay tax on.  Also keep this in mind:  The depreciation on unit A will also be recaptured even if you claim 121 exemption on Unit A.  because of this recaptured depreciation issue on Unit A, you might be better off using 1031 to defer the taxes on both Units A and B, and claiming 121 exemption on the principal residence portion.  I hope this helps.   And that we can help if you decide 1031 exchange is the way to go. </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:055001c806a4$6f8799a0$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-27291496995962062902007-10-04T09:00:00.000-07:002007-10-04T09:03:00.957-07:001031 exchange and principal residence<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x: We bought a house for 485,000 and have refinanced the house for  both landscape upgrades and also to eliminate some debt.  We now owe  $700,000.  The market value of the home is 1,200,000. Would the husband  and wife $500,000 tax exclusion be based on the 500,000 purchase price or  the 700,000 balance that is now owed on the house?<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear J:  Your gain will be calculated by subtracting your tax basis from your sales price (minus costs of selling).  In your case your basis is probably close to your purchase price (unless you made capital improvements to the property which would increase your tax basis)  The size of the mortgage bears no relationship to your gain.  Therefore, simplistically your gain will be the difference between $485K and $1.2M. After you add capital improvements and subtract costs of selling, then apply the $500K exemption (IRC section 121)  you will probably still have a small tax liability.  Not a bad place to be.  </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:04f501c8069f$a6e7e080$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-17483708156763036082007-09-28T11:38:00.000-07:002007-09-28T11:41:17.315-07:001031 exchange or not? <DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x.com: My 71 yr. old father has relocated to another state and  wants to gift me his house,  He has also signed over power of atty. for the sale  of this house if I intend to do so. I am thinking of selling the home I currently live in and moving into his  home for 2 yrs. to avoid capital gains, although I would rather go into an entirely different house. I think I understand the  concept behind a 1031x but, want to know is there any way we can do this  and not have the replacement property have his name on it? he does not  want to have the responsibility of taxes in his name etc, If we do a quit claim on the property (the house is still fully in his  name) is there any way to 1031x it in my name? or am I just better off  living out 2 yrs to fulfill the irs wish list?? Thankyou<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear Sir:  As I understand it your father still owns his home and he did not change his principal residence that long ago.  As long as he sells that property within three years after he creates a new principal residence he can sell the house and qualify for tax exemption under IRC section 121.  The best strategy is for him to sell his house, and exempt as much as possible under IRC section 121.  Then he gift you the cash.  You sell your own home and it too qualifies for exemption under IRC section 121.  Of course since no 1031 exchange is occurring you do not need our service.  Please let me know if this works and keep us in mind for other business that you can refer to us.  Sincerely,  </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:01b801c801fe$ca6ab190$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-51146189500419406792007-09-21T08:30:00.000-07:002007-09-21T08:32:36.285-07:00tic structure <DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x.com: Can an investor (Mr. A) partner up with another investor (Mr.  1031) who has relinquished his property and wishes to acquire another  larger ppty. Mr 1031 has $500k with a 1031 facilitator and the ppty  identified requires a down pmt of $700k. Can Mr.1031 join forces with  another investor who will provide the additional $250k in equity to  satisfy the required down payment. Can they form a TIC in this scenario.  Eventually, Mr. A and Mr. 1031 plan to have an equal 50/50 share in the  ppty. If not, what vehicle/type of entity would best suit this type of  structure. The objective for Mr.1031 is to defer capital gains realized  from the sale of his ppty.<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear Mr. H:  Yes you can sell 100% of a relinquished property and buy a fractional interest in a replacement property in a 1031 exchange.  And, yes the tenant in common arrangement is the right structure.  Remember the person doing the 1031 exchange must not only trade equal or up in equity ($500K in your example) but also equal or up in value.  For this reason the 50-50 split may or may not work.  To reiterate the 1031 exchanger's fractional interest must be of equal or greater value than 100% oft he relinquished property.  Next time please chose us for your 1031 exchange service.  Also, I could write a tenant in common agreement for you if needed.  Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:002f01c7fc64$4aaa6a80$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-35558967775916201492007-09-18T12:51:00.000-07:002007-09-18T12:53:34.164-07:00Mother buying from son 1031 exchange. <DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear Steve:  My Mother owns one rental property and we co-own another one.  However, I live in the one that we co-own.  She wants to sell the one that she owns and 1031 exchange into the property which we co-own, effectively buying me out.  I will then go buy a new principal residence with my sale proceeds.  Does this raise any special 1031 problems?  </FONT></DIV> <DIV> </DIV> <DIV><FONT face=Arial size=2>Dear A:  I have given your Mother's situation serious thought.  She cannot simply sell her property and buy from you as 1031 exchange.  This transaction, because you are a related party, places her tax deferral under section 1031 in jeopardy.  I cannot recommend this.  I am also happy to provide you with the tax authority on which this opinion is based.  Instead, if she must sell, I suggest that she buy a property of your choosing in Washington State, which she then rents to you and holds for investment.  If, at some point, you want to acquire ownership of the Washington State property from her, we can discuss the most tax efficient way to accomplish this.  I hope you will choose us for your 1031 exchange.  Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:001e01c7fa2d$42466350$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-38692942899877148232007-09-05T09:42:00.000-07:002007-09-05T09:44:56.400-07:00community property and tenants in common<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2> <DIV dir=ltr align=left><SPAN class=828023016-05092007><FONT face=Arial color=#0000ff size=2>Dear Steve,</FONT></SPAN></DIV> <DIV dir=ltr align=left><SPAN class=828023016-05092007><FONT face=Arial color=#0000ff size=2>As you have advised my wife and I will be holding title as two single member LLC's as tenants in common. My lender does not require a TIC agreement. Does the IRS require a TIC agreement? </FONT></SPAN><SPAN class=828023016-05092007><FONT face=Arial color=#0000ff size=2>Is there anything else that I need to do to insure that the IRS will allow my 1031 exchange considering that my wife and I held title as community property in California and will now be holding title as tenants in common in Colorado?</FONT></SPAN></DIV> <DIV dir=ltr align=left><SPAN class=828023016-05092007><FONT color=#0000ff></FONT></SPAN> </DIV></FONT></DIV> <DIV><FONT face=Arial size=2>Dear G:  No TIC agreement is required by us.  Remember tenants in common has many rights which are implicit in the ownership.  For instance: right to share possession, rights to share income, duty to protect the property, duty to share expenses, right to sell their share separately.  The big thing that tenants in common do not share is this:  If one owner wants to spend money on capital improvements and the other one does not then the dissenting co-owner cannot be forced into making unwanted improvements.  All of this will probably be non-issues for you two.  Finally selling as community property and buying as two single member LLCs is exactly what I recommend.  Are we handling your 1031x?  I hope so.  Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:00db01c7efdb$c77b6ea0$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-61800246121410107702007-09-04T11:37:00.000-07:002007-09-04T11:40:06.854-07:001031 exchange, estate planning trust, step up basis<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear Steve: I plan on 1031 exchanging into a new property, then put the new property in a revocable estate planning trust.  When I die will my daughter receive a stepped up basis?  If so when does she have a tax obligation?  Sincerely, F</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Dear F:  As you know, when you 1031x you defer income taxes on the realized gain.  The tax is only recognized upon the subsequent sale of the replacement property without another 1031x.  If you hold your replacement property in a revocable trust then you are treated as the owner of the property.  Upon your death your heirs will receive a stepped up basis in the property which they inherit equal to the FMV date of death.  By working the two tax strategies together you  and your heirs successfully avoid all income tax liability.   Estate taxes are not discussed here.  I hope you will chose us for your 1031 exchange, Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:003501c7ef22$b0eda7c0$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-31868163009008022802007-09-04T10:02:00.000-07:002007-09-04T10:04:23.851-07:00sale with contract for deed. <DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x: My mother sold 62 acres of land on a contract for deed eight  years ago.  She originally paid $19,200 for the property.  The individual  now wants to sell the property for $48,000.  She is 81 years old and a  resident of South Dakota.  She also owns 12.2 acres on which she lives.  What will her total capital gains tax be and as a senior citizen are there  ways that she can invest this money to avoid the taxes.  For example, she  needs to replace her septic system and make repairs to her home. Thank you for your help.<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear S:  Generally, selling a property on contract for deed only postpones the taxes due until the money is received.  It is treated for tax purposes as an installment sale.  Right now it seems like your Mother is getting paid off.  When she does the income taxes will be due and there is nothing that can be done about it.  It is too late to do a 1031 exchange.  Also her age is of no benefit.  I am afraid she is just going to have to pay the tax.  On the other hand, when she decides to sell her home and 12 acres that should be tax free.   Let me know if you need more.  </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:073001c7ef15$524f0310$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-49632234900070230952007-08-30T07:21:00.000-07:002007-08-30T07:23:24.174-07:00Name change on replacement property.<DIV><FONT face=Arial size=2> <P class=MsoNormal><FONT face=Arial color=black size=2><SPAN style="FONT-SIZE: 11pt; COLOR: black; FONT-FAMILY: Arial">Hi Steve,<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o:p></o:p></SPAN></FONT></P> <P class=MsoNormal><FONT face=Arial color=black size=2><SPAN style="FONT-SIZE: 11pt; COLOR: black; FONT-FAMILY: Arial"><o:p> R</o:p></SPAN></FONT><FONT face=Arial color=black size=2><SPAN style="FONT-SIZE: 11pt; COLOR: black; FONT-FAMILY: Arial">ecently, I sold an office building and used the proceeds to purchase an apartment complex with  1031x.com.  I would now like to change the name of the former office building LLC that holds the new property to something that's more suitable for an apartment complex. Can I make that change without subjecting myself to any tax penalties or any other negative consequences?</SPAN></FONT></P><FONT face=Arial color=black size=2><SPAN style="FONT-SIZE: 11pt; COLOR: black; FONT-FAMILY: Arial"><o:p> <DIV><FONT face=Arial size=2>Dear L:  The best thing to do is to change the name without changing the tax ID number.  Find out how to change the name, under state law, while maintaining the current ownership structure and tax ID number.  </FONT></DIV></o:p></SPAN></FONT> <P class=MsoNormal><FONT face=Arial color=black size=2><SPAN style="FONT-SIZE: 11pt; COLOR: black; FONT-FAMILY: Arial"><o:p> </o:p></SPAN></FONT></P></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:02d001c7eb11$07347c00$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-11942228655319881982007-08-16T12:46:00.001-07:002007-08-16T12:46:15.611-07:00converting investment property to principal residence<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear M. Hickox: I have an investment property which was purchased as a 1031 tax  free exchange with funds from a previous investment property.  I have  rented this property for the last 3 years, and am considering converting  it to my own residence due my advancing age.  Question:  What will my tax liability be when I convert from investment to primary residence.  The  property originally cost $200K and I put $100K of funds tax free as a  downpayment.  The property is now worth approximately $230K.<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear Josephine:  Here is the good news:  Converting a rental property to a principal residence does not trigger any tax liability.  If fact, if you now live in the converted property for 2 more years you can sell the property and qualify for tax EXEMPTION under section 121 of the Internal Revenue Code.  Hope this helps.  Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:032501c7e03e$18c53500$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-70213134646566286122007-08-03T13:41:00.001-07:002007-08-03T13:41:54.738-07:00depreciation recapture<DIV><FONT face=Arial size=2><FONT face="Times New Roman" size=3>Dear 1031x.com: What is meant by recaptured depreciation? </FONT><BR></FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Dear K:  Depreciation is a tax convention.  On improved real estate the taxpayer is allowed to depreciate the improvements.  First improvements are valued separately from the land and your tax basis is allocated between the land and the improvements prorata.  Thereafter, the taxpayer is allowed an annual  noncash expense of holding the real estate; this is known as depreciation.  The most common depreciation allowance is as follows:  On residential rental property you are allowed a depreciation allowance equal to 1/27.5 of the basis in the improvements.  Over your years of owning the real estate the depreciation is added together from year to year.  Your tax basis is reduced by the depreciation allowed year by year.   Finally, if the property is sold at a gain, the accumulated depreciation is "recaptured" and taxed at a different (higher) tax rate than the long term capital gain (appreciation in value).  I know this is a complicated answer, and I have tried to answer your question as simply as I can.  Of course, a successful 1031 exchange defers all income tax liability.  If you need more I suggest that you call me.  Sincerely,</FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:007901c7d60e$b7b0c510$6f01a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-1696997169866247212007-08-02T08:01:00.000-07:002007-08-02T08:02:04.868-07:00sale of principal residence employment change<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x: I bought a new home in Utah and was about to move in, but I got my job transferred to new jersey. I am selling my home at a premium of 20000$. Can you explain the nest way to except from capital gains.<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear Sir:  Your sale of this home is because of a change in employment.  You are entitled to a partial exemption calculated as follows:  number of months you owned the home divided by 24 times $20K (gain) equal the tax exempt amount.  The rest of the gain is taxable.  Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:033b01c7d516$13763820$6701a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-49822217357454355532007-08-02T07:53:00.001-07:002007-08-02T07:53:58.036-07:00Exchange followed by gift <DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Hi I hope you can give some advice. My parents own a rental property.  they bought it for $130,000 in 89 and  it now has a FMV of about $450,000.  For tax reasons over the years it has  been devalued about $50,000.  they would like to gift it to us (my husband  and I) as we do not have our own place to live.  However this property is  far from where my husband works.  What are the options? Can they do a 1031 exchange buying a property in a better location.  How  long must they rent the property/own the property before they can gift it  to us.  Once the property is in our name how long must we have it as our  primary residence before we can sell it without being required to pay  capital gains tax.  Sorry there are many questions here.  Thank you for  your help.<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear J:  In a 1031 exchange both property must be held for investment.  If you really want the 1031 exchange to be unassailable then your parents should 1031 exchange into a new home.  They  should then rent the home to you for two years.  You pay them rent and they report the new home as an investment for two years.  After that they can gift the property to you. Anything shorter than this and the 1031 exchange is in some risk.  We really want to take all of the tax risk out of this because the gain is so large.  Once the property is in your name then you would have to hold it for two more years before you could sell it and claim the $500K section 121 exemption.  This is, therefore, a four year plan.  Does that work for you?  Is there some more urgency to this?  Please chose us for your 1031 exchange services. Sincerely</FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:030101c7d514$eed24b90$6701a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-1902781082464412332007-07-26T15:16:00.001-07:002007-07-26T15:16:25.587-07:00converting principal residence to investment<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear Mr. Hickox,  I have owned and lived in the same condo for 20 years.  It has gone up in value from $40K to $180K in that time.  Because the market is not that great right now, I plan to convert this property to a rental when I move into my new home.  What do you think.</FONT></DIV> <DIV><FONT face=Arial size=2></FONT> </DIV> <DIV><FONT face=Arial size=2>Dear C:    Right now, because it is your principal residence, you qualify for up to a $250K income tax exemption upon sale of a principal residence.  When you convert this property to rental property you start to lose the exemption.  If you sell the condo more than three years after you convert it to rental then you have lost your principal residence  tax exemption.  Given our discussion about rates of return and in light of this tax exemption available to you, I urge you to sell this condo not later than three years from the date you convert it to investment.  Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:00d301c7cfd2$93643c10$6701a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-2768289213831172622007-07-23T08:44:00.001-07:002007-07-23T08:44:27.471-07:00changing intent<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x:  I have lived in my primary residence in CA for 22 yrs.  I took  $130,000 of equity out to purchase some land in MT for the purpose of  living there. Circumstances have changed and I cannot move there for a  while.  If we build a house and sell it, and purchase 2 separate parcels  of land with the profit, will we receive any tax breaks...or do we have to  purchase a single family home like we sold?  I have owned the property for  6 mos. The house could be ready by Oct. or we could work on it during the  winter and have it ready in April or May. Does that make me a dealer or  investor?  What are my tax ramifications? Thank you, J<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear J:  There is no easy answer to your question.  You bought the land with the intent of moving there.  Now your use has changed to either investor or developer. Certainly if you resold the land without development you could 1031 exchange to defer tax on any gain.  If you build and  then sell the gain could well be treated as ordinary income as your intent is to immediately resell the new house.  On the other hand, because you are  not really a professional developer, and this is your first effort,  you could probably report this as a 1031x.  What I am saying is that there is tax risk in building, selling and 1031 exchanging, and there is no way around the tax risk.  Actually, there is a way around it, but you would have to hold the new home for investment, and probably rent it out for about one year, before your put it on the market.  The you could get 1031 treatment.  The biggest thing for you to consider is the gain you could achieve by building the new house in MT.  If there is really a lot of profit in doing so then you should go for it and accept the tax consequences.  On the other hand, if there is not a lot of gain to be had, you should just resell the land.  I hope this helps. </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:029801c7cd40$54954c20$6701a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-64362196717319554792007-07-19T14:26:00.001-07:002007-07-19T14:26:25.643-07:001031 and related parties<DIV><FONT face=Arial size=2> <P style="TEXT-INDENT: 0.5in"><FONT size=3><FONT face="Times New Roman">Dear 1031x:  My private oil and gas company holds an option to purchase certain oil and gas working interests.<SPAN style="mso-spacerun: yes">  </SPAN>The right to exercise these options is assignable.<SPAN style="mso-spacerun: yes">  I am</SPAN> in the midst of a 1031 exchange.<SPAN style="mso-spacerun: yes">  I own 100% of this oil company.  I</SPAN> would like to acquire the same working interests as part of  my 1031 replacement property.<SPAN style="mso-spacerun: yes">  </SPAN>If<SPAN style="mso-spacerun: yes">  my oil company</SPAN> assigns its rights to exercise these options to purchase to me, and then I exercise the option, buying the working interests from a third party, will tax deferral will be maintained ?  <SPAN style="mso-spacerun: yes">   </SPAN></FONT></FONT></P></FONT></DIV> <DIV><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'"> <P style="TEXT-INDENT: 0.5in"><FONT size=3>Dear Sir: You have asked me to explain how tax deferral under IRC section 1031 can be effected when exchanges occur<SPAN style="mso-spacerun: yes">  </SPAN>involving related parties. <SPAN style="mso-spacerun: yes"> </SPAN>You have also asked me how these rules will effect a specific fact pattern. </FONT></P> <P style="TEXT-INDENT: 0.5in"><FONT size=3>The IRS defines related parties as parents, spouses, children, agents of the taxpayer or entities where the same individuals control at least fifty percent of both entities. With specific regard to related parties and 1031 exchanges: </FONT></P> <P><FONT size=3>First: <BR>Section 1031(f)(1) of the Code provides that if a taxpayer exchanges property with a related person, resulting in non-recognition of gain under the section, and within two years of such exchange the related person or the taxpayer disposes of the property received in the exchange, then the taxpayer must recognize the gain. The effective date upon which the taxpayer must recognize the gain will be the date upon which the later sale occurs.</FONT></P> <P><FONT size=3>Therefore, when related parties engage in an exchange, both parties must retain the property obtained in the exchange for two years for either of them to gain the tax deferred advantages of section 1031. </FONT></P> <P><FONT size=3>The purpose of this code section is to prevent basis shifting between related parties, for example.<SPAN style="mso-spacerun: yes">  </SPAN>Dad owns the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /><st1:place>Mayfair</st1:place> apartment building with value of $1M and basis of $100K.<SPAN style="mso-spacerun: yes">  </SPAN>Son own the Fairoaks apartment building with a value of $1M and a basis of $900K.<SPAN style="mso-spacerun: yes">   </SPAN>Dad receives an offer to sell <st1:place>Mayfair</st1:place>.<SPAN style="mso-spacerun: yes">  </SPAN>Instead Dad and Son 1031 exchange <st1:place>Mayfair</st1:place> and Fairoaks.<SPAN style="mso-spacerun: yes">  </SPAN>Son then sells <st1:place>Mayfair</st1:place> to buyer.<SPAN style="mso-spacerun: yes">  </SPAN>Unless two years had elapsed after the 1031 exchange between Dad and Son both parties would lose their 1031 tax deferral. </FONT></P> <P><FONT size=3>Second: <BR>In a three party exchange where the exchanger sells the old property to a related party and buys the new property from an unrelated party, the old property should be held for two years in order to assure no recognition.<SPAN style="mso-spacerun: yes">   </SPAN>The same rational as expressed above applies here.<SPAN style="mso-spacerun: yes">  </SPAN>If the related party, now owning the old property,<SPAN style="mso-spacerun: yes">  </SPAN>immediately sold the old property they would have no gain recognition.<SPAN style="mso-spacerun: yes">  </SPAN>They would, as a practical matter, have accomplished the basis shifting prohibited by section 1031(f). (TAM 9748006) </FONT></P> <P><FONT size=3>Third: <BR>In a three party exchange where the exchanger sells the old property to an unrelated party; the new property usually may NOT be purchased from a related party.<SPAN style="mso-spacerun: yes">  </SPAN>The IRS<SPAN style="mso-spacerun: yes">   </SPAN>treats purchase from a related person as buying from yourself and disallows tax deferral.<SPAN style="mso-spacerun: yes">  </SPAN>If you think of related parties as the same tax payer then buying from a related party does look like buying from yourself.<SPAN style="mso-spacerun: yes">  </SPAN>When you buy from yourself you start the exchange with two properties and finish the exchange with one property and cash, no exchange.<SPAN style="mso-spacerun: yes">  </SPAN>This cashing out of real estate will disallow the tax deferral. There are two exceptions to this rule:<SPAN style="mso-spacerun: yes">  </SPAN>a) The related party is also doing a 1031 exchange when he sells to you, (PLR 2004-40002), or b) the gain that the related party is recognizing is larger than the one that you are deferring. (1031)(f)(2)(C).<SPAN style="mso-spacerun: yes">   </SPAN>Under exception a) no cashing out occurs, and under except b) tax deferral is not occurring. </FONT></P> <P><FONT size=3>Applying these rules to your situation I believe that your structure will satisfy the requirements of section 1031 and that tax deferral will be achieved as you are not buying from a related party.  </FONT></P> <P class=MsoNormal><FONT face=Arial></FONT></SPAN> </P> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:018f01c7ca4b$72f58740$6701a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 </P> <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-42432056029476558552007-07-17T08:16:00.001-07:002007-07-17T08:16:16.433-07:00leverage and real estate<DIV><FONT face=Arial size=2> <DIV>Hi Steve,<BR><BR>We are trying to figure to where to have a mortgage and realize that we need<BR>to know the answer to this question.<BR><BR>How much has to be reinvested on a 1031 x?  Is it the net proceeds or the<BR>gross proceeds of the sale.  Is it advantageous to have a mortgage on the<BR>investment property?<BR><BR>We are trying to figure out where to hold a mortgage.<BR><BR>Thanks for your help.<BR><BR></DIV> <DIV>Dear L:  The general rule under section 1031 is: to defer ALL income tax liability you must trade equal or up in VALUE minus the transaction costs of selling your property.   With regard to your question about mortgages: You are trying to buy a property that goes up in value.  If the property goes on in value (including any income produced by the property) at a rate  higher than the interest rate on the mortgage then the mortgage will make the investment even better.  I, generally, believe than higher mortgage amounts make for better real estate investments.  Let me know if you need more.  Sincerely, </DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:063401c7c885$69484ce0$6701a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-27667713391033300552007-07-12T14:37:00.000-07:002007-07-12T14:35:38.726-07:00Equal or up in value<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x: We purchased property for $302,000 with $65,000 cash down. Made  improvements of $20,000. Mortgage is $239,000.  House sells for $485,000. We're trying to understand what "mortgage relief  boot" is.<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear G:  The general rule under 1031 is that you must trade equal or up in VALUE in order to defer ALL income tax liability.  You are able to subtract from the value the costs of selling the property (but not the cost of fix up).  Please choose us for your 1031x services. </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:043001c7c4cc$c909e5b0$6701a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlogtag:blogger.com,1999:blog-16648118.post-59816967868489815302007-07-12T13:11:00.000-07:002007-07-12T13:10:19.304-07:00Income tax on inherited property<DIV><FONT face=Arial size=2> <DIV><FONT face=Arial size=2>Dear 1031x: We are selling a house in, South Carolina that was owned  by my husbands deceased mother who has paid the property off.  The sales  price of the house is $135,000 and the real estate fees and title fees  will be about $10,000 there for they will net aprox. $125,000.  Will there  be a Capitol Gains  Tax on the money they will receive?<BR></FONT></DIV> <DIV><FONT face=Arial size=2>Dear K:  Tax liability is paid on the gain.  The gain is determined by subtracting the basis from the net sales price.  When a property is received by inheritance the tax basis for the new owner is reset to the fair market value of the property on the date of death.  If your husband received the property by inheritance (and not by gift during his Mother's life) then he will have received a new tax basis in the property equal to its fair market value date of death.   The gain will be primarily, the appreciation in the property since Mom's death.  For example: FMV date of death is $100K; now property sells (net) for $125K.  Tax will be due on $25K.  Tax rate is 15% to federal government plus any income tax imposed by the State(s).  I hope this helps.  I also hope you will choose us for any 1031x that you need.  Sincerely, </FONT></DIV></FONT></DIV> <DIV> <P class=MsoNormal><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Lucida Handwriting'">Steve Hickox</SPAN><SPAN style="FONT-SIZE: 10pt"><BR>Attorney / President</SPAN><BR><BR><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: Papyrus">1031x.com has grown to provide many services to our clients as <STRONG>Castle United!</STRONG><BR>Click here:</SPAN><SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"> </SPAN> <SPAN style="FONT-SIZE: 10pt"><A href="http://www.CastleUnited.com/">http://www.CastleUnited.com/</A></SPAN> <SPAN style="FONT-SIZE: 10pt; FONT-FAMILY: 'Comic Sans MS'"><BR></SPAN><IMG id=_x0000_i1025 title="" style="WIDTH: 80px; HEIGHT: 32px" height=32 alt=1031x.com src="cid:02b801c7c4c0$dd005560$6701a8c0@Crestone" width=80 border=0><BR><SPAN style="FONT-SIZE: 10pt">1031x.com, Inc.<BR></SPAN><?xml:namespace prefix = st1 /><st1:address><st1:street><SPAN style="FONT-SIZE: 10pt">2120 S. Birch St.</SPAN></st1:street><SPAN style="FONT-SIZE: 10pt"><BR></SPAN><st1:city><SPAN style="FONT-SIZE: 10pt">Denver</SPAN></st1:city><SPAN style="FONT-SIZE: 10pt">, </SPAN><st1:state><SPAN style="FONT-SIZE: 10pt">CO</SPAN></st1:state><SPAN style="FONT-SIZE: 10pt"> </SPAN><st1:postalcode><SPAN style="FONT-SIZE: 10pt">80222</SPAN></st1:postalcode></st1:address><SPAN style="FONT-SIZE: 10pt"><BR>303.504.0144<BR>Toll Free 888.899.1031<BR>Fax 303.715.1012 <P><A href="mailto:infox@1031xcastle.com">infox@1031xcastle.com</A></SPAN></P></DIV><div class="blogger-post-footer">www.1031x.com 1-888-899-1031</div>1031ExchangeBlog