Answers
I have a friend who wants to sell her house in Chicago and move out of state. Can she sell her home in Chicago, buy a new one and defer the taxes on the proceeds from the sale of the Chicago property(via a 1031 Starker Like-Kind Exchange) by rolling the money into the new property? Or is a Starker limited to investment and/or business property?
No she can't, if the property is her residence. The 1031 is limited to business and investment property. But if she lived in the house 2 of the last 5 years, there is another Internal Revenue Code provision that shelters much or all of her capital gain, I believe it is 250K for a single person, 500K for a couple.
Doug Johnson, CPA, Ballard & Company, Mountain Home, Arkansas answers about 1031 Exchanges; exchange of like kind property avoiding or ...
My husband and I are looking for a single family home to purchase as our primary residence. An ad for a home that looks appealing to us indicates: "Buyer to participate in 1031 exchange." I understand the basic principle that a 1031 exchange is a way for the owner of a business or investment property to sell the property and re-invest the money in a new business or investment property without having to pay capital gains taxes on the sale of the original property. However, what I don't understand is what the risk, if any, would be to me and my husband were we to purchase someone's investment property as our primary residence in this type of situation. Is it simply a matter that we would have to agree to be in escrow until the seller locates and purchases his "like-kind" exchange property? Or is there more to it than that?
Generally with 1031's it is advised that all parties involved are informed from the beginning of the transaction. That may be why it is being advertised. I think that the seller is just putting a disclaimer in the ad to conform to the tax law.
Money transfer from your perspective will be handled the same way as it would be in a normal transaction. At the closing table you will either sign loan documents or pay cash for the transfer of title on the property.
At that point the seller will have to handle the proceeds differently(usually through an intermediary) than they would normally be handled. This in no way effects you.
Once you have bought the house you own it. If the seller doesn't find a "like-kind" property, he will not get the tax break on any realized capital gains from that property, but in no way will this effect the title of the property you purchased.
It doesn't matter how you and your husband use the property purchased in a 1031 for it to conform to 1031criteria for the seller. I.E., if the seller was using a property as an investment property but you intend to use it as a primary residence, the seller is still entitled to claim that property as an investment property for 1031 purposes.
The intent of a seller selling a property for the purpose of a 1031 exchange should have a very little to zero effect on the purchaser of the property
I am currently renovating a home that is NOT my primary residence. I bought the house as an investment. I wanted to fix it up and sell it right away (flip) but taxes will hurt my profit greatly. Im trying to find new and crative ways to avoid taxes.
If I were to sell the house im renovating and use a 1031 exchange to buy another property and make that house I buy my primary residence and live in that house for 2 years and sell that house, will my capital gains be tax free? Or will they look back and see that I used a 1031 exchange in the past and tax me on those back capitail gains from the house before that.
This will work, you can avoid taxes this way, but there is one key point you are missing. When you do a 1031 excahnge, the property you are exchanging into also has to be an investment property. So, you really have to do the 1031 exchange into a new house, rent that house out for a year or so, and then you can kick out the tenant and move in yourself (and get teh 250K deduction after 2 more years living there). This is ok as long as you prove intent to exchange from one investment property to another (its a loophole, but one I've heard of used before). Still this is a bit of work (3 years in the new house - 1 as a rental and 2 as a primary residence) to avoid the taxes, but it should be ok.
I heard of a more extreme case where a guy wanted to move to florida. He sold about 6 rental places and the place he was living in and bought one big house in Fl. Rented it out for awhile (maybe a year,m not sure) and then moved into it. Bingo, no taxes at all (though I suspect when he sold the FL house he still would've paid taxes on part of the sale as I suspect he was well over the 250K deduction limit).
1031 Exchange a Primary Residence and Tax Planning Strategies at ...
The success of tax planning strategies for the primary residence is dependent on the classification of the property – both the 1031 Exchange Relinquished Property and the Replacement Property. If the properties do not meet the qualified property of like-kind tests, the IRS will treat the exchange as a taxable sale. The important issue is the property must qualify for 1031 Exchange treatment. Just saying the property is qualified does not make it so. It’s what you actually use the property for that determines its classification. And you better have substantial records and other proof. If the IRS says the property did not qualify, the burden of proof is on you.
Strategy 1 –
Taxpayers have owned and occupied their home as their personal residence for the last six years. If they sold today, they would realize a gain of $345,000. This gain would qualify for the full exclusion under §121 – it’s less than the $500,000 maximim allowed for a married couple. They decide to sell, take their exclusion and move into one of their rentals acquired many years ago.
...News
Saba Announces Second Quarter Fiscal Year 2011 ResultsTrading Markets (press release) - Jan 06, 2011
Customers: We added 42 new enterprise customers in the quarter including: Alfac, Best Buy Canada, Del Monte, Finning Chile, Home Depot US, H&R Block, and more »