1031 vs. Sell

[CharleneLee35]

I live in MA and have an investment property that has gained considerable equity over the last 8 years and now due to financial reasons have to sell. I was wondering if it is worth the effort to do the 1031 process for a partial tax deferment - I plan on living in a different state SC where property values are much lower and wanted to reinvest ~1/2 of the money - My question is do they tax the remainder of the money that you have left after doing the exchange at the same tax rate that they would have had you just sold the property or is the rate higher???????????

 

[dave berrey]

You would have to pay taxes on the amount that you are paid for your property minus the sum of how much you invest in the new property added to the amount you originally paid for the property you are selling. There are also the depreciation /money spent on improvements to be calculated. That is your basis and the difference between that and what you invest is called the "boot" and is taxable. Did this help at all?

 

[Rhubarb297]

I live in MA and have an investment property that has gained considerable equity over the last 8 years and now due to financial reasons have to sell. I was wondering if it is worth the effort to do the 1031 process for a partial tax deferment - I plan on living in a different state SC where property values are much lower and wanted to reinvest ~1/2 of the money - My question is do they tax the remainder of the money that you have left after doing the exchange at the same tax rate that they would have had you just sold the property or is the rate higher???????????

Same tax rate. (Why would you think the rate would be higher?) And whether it's worth it to do an exchange depends on a number of factors. It sounds like you want to take out 1/2 of the money. That's what you'll be taxed on. The poster above is right about figuring the basis for tax purposes.

 

[CharleneLee35]

Thank You!

Dave Berrey & Rhubarb297,

Thank you for the information - It sounds too good to be true and I am looking for the catch22 - I thought where I had owned the investment property for a long time that I would be in a lower capital gains tax rate by selling it outright - and if I entered into a 1031 I would relinquish any previous tax breaks that I may have had if I had not entered into a 1031 transaction and that the 1031 tax rate is considered standard where you are not able to deduct any capital improvements and had to utilize the money or pay the taxes with no deductions on the amount left at the highest capital gain rate.

 

[HomeGuru]

Next time post in the Tax Law forum.