1031 Selling Vs. Investing With A Relative
This is a two part question:
First, my mother owns a property that has been 1031, if she were to sell it to me and act as the mortgage holder, would she then not have to pay capital gains? What about income tax?
Second, is my mother allowed to sell the 1031 property and then reinvest that money in a property of higher value with me? For example, could she be 80% owner and my husaband and I, 20% owners?
Thanks! That info really cleared things up!
NewKidd is right on the money.
The only time the related party issues would arise is if your mother was selling to or buying from a related party as part of a 1031 exchange transaction. If she sells the property that was previously part of a 1031 exchange to a non-related party and then invests in another replacement property in which you and your husband also acquires a 20% interest, there would be no related party issues involved.
[addsig]
These are good questions to take to a licensed tax advisor.
Suggest you take your property off the market until 12/05. A sale after then will allow you and your spouse to exlcude all of your sale profit from capital gains taxes. If not possible, then modify your listing agreement to sell with a lease option only if your real estate agency will allow this. Consider a lease purchase arrangement, collect rent for now, sell later when your capital gains exclusion can be reused again.
Otherwise, put a six month tenant in place to tide you over in the meantime. Even if you have to offer a reduce rent so you only breakeven, or perhaps go a little negative you come out ahead after taxes. Relist the property for sale when the lease expires.
Since you have already been using your former primary residence as a rental, a 1031 exchange for another investment rental will defer capital gains taxes.
Relocation to attend school is not on the list of hardship reasons to qualify for a reduced capital gains exclusion. Since your wife is not on title, she may not be able to use the capital gains exclusion in her own right, but only in combination with your eligibility when filing a joint tax return.
Take all these questions to a licensed tax professional. You have too big a number at stake to rely on anonymous advice from a website.[ Edited by NewKidinTown2 on Date 06/29/2005 ]
Do an internet search for denver-accounting.