1031
Facts:
Own 1 house which we inherited and we rented. In an LLC which we are the only members of.
Own 1 vacation rental property. Not in the LLC but in our names and mortgaged.
Want to sell both homes in order to upgrade our vacation rental property. Plan on investing 3/4 of the monies on the rental property and spend 1/4 of the monies for a second home.
My question is, can we do a 1031 exchange for the vacation rental, it would be equal or greater than either house. Will the balance which we invest in a second home be taxed as capital gains? Considering that the apprasial on the house we inherited was 388K and we would only spend 375K on the second home. We were informed that if we sold the house we would only pay capital gains on the difference between the 388k and what the house sold for, which would be about 250k if we out right sold it.
One other question, do both houses have to be in the LLC? If so can we quit claim the house that is mortgaged to the LLC?
I have a couple of questions first. Who is "we"? Is "we" a husband and wife? And, just to clarify, the "vacation rental" is property that is rented to people on vacation and is not used for personal use (or if so, is used for very, very little personal use). Was the appraisal that you refer to done at the date of death so that the $388K is the value at the date of death and therefore your new cost basis after you received the step-up in basis?
[addsig]
Sorry about being too vague, I'm new at this.
We, is my 2 sisters and I. We formed the LLC and are the only members. We also own the vacation rental house. That house is rented out to vacationers. We use it occasionally, but less than 2 weeks a year.
The house was appraised at the time of our mom's death for the purpose of the value of the estate, not done on day of death but maybe within a month or 2. We have owned that house for 4 years now.