1301
I have three houses. One primary and two rentals. One was depecatied and one was not. I am selling one to my son and the other one on the open market. What are my chances of using a 1301 to avoid capital gain taxes. I planned to build a house of equal value or greater with the profits.
Are you selling the rentals or the primary residence or all three?
How will your son use the (rental?) house you plan to sell to him?
How will you use the house you are planning to build with your sale profits?
I plan to sell all three.
Son will live as primary home
New home will be primary home
None of the properties are eligible to participate in a 1031 exchange under the circumstances you describe.
Your primary residence may be eligible for the Section 121 capital gains exclusion on the first $250K of profit. Unfortunately, your stragegy disqualifies the rental properties from a 1031 tax deferred exchange because you are not replacing your rental property with more investment use (e.g., rental) property, AND, your son is not purchasing your rental property to use for a qualified investment use..
Thanks. I guess I have to bite the bullet and pay the taxes.
This is a tough question to answer. If you are not very familiar with the tax treatments for your investment activity, then how will you know whether the CPA you interview is good for you?
The best thing to do is get familiar with some of the tax treatments for your expected investment activities. Then ask the CPA questions for which you already know the answer, or at least know the framework for the answer.
If the CPA responds correctly off the top of his/ner head, then you might assume that he/she has a good grasp of the tax treatments that might apply to your activities.
If the CPA gives you a wrong answer, then say "Thank you for your time" and leave.
If the CPA says "I will have to look that up", at least you have someone who does not shoot from the hip, but who will need to overcome a learning curve at your expense.
A good CPA does not just do your taxes. A good CPA will do tax planning with you at the beginning of the year, and be available for consultations during the year as well. The CPA should be versed in entity structuring sufficiently well to recommend an entity appropriate to your investment activities.
More often than not, forming a business entity for rental property operations has no net impact on your tax return.
A business entity, in your case, has a legal (asset protection) rather than a tax benefit , perhaps better addressed by an attorney experienced in entity structuring.
NewKid,
I have a similar question as Fh4rent. My wife and I are doing at least 4 real estate transactions in 2005 and are getting a little bit over whelmed by the tax implications and ramifications. I am in DC, do you hav a good CPA that you might be able to refer.
We know the tax laws and issues and have gone to several different people including H&R Block Premium. They were so bad that we had to convince them that we qualified for the $500,000 capital gains exemption when we sold a primary residence in 2004.
So, my point is, even if you know a lot about the tax laws, it is still hard to find someone to establish the kind of relationship you are talking about (and which we want!)...Do you have any advice?
I am not sure that you need a tax person who is a real estate investor. Mine is not, but he seems very knowledgeable on real estate matters. Actually, I wind up doing most of the work and deliver to him an initial Schedule E in soft form. I like having his signature on my tax return.
Yes, you can qualify for a reduced maximum exclusion. The proration period for the reduced maximum exclusion will be the shorter of (1) the period of time that elapsed since you last took advantage of the capital gains exclusion, or, (2) the period of time less than two years that you have actually owned and occupied your new home as your primary residence.
Of course, the sale must be by reason of a change in place of employment, health, or unforeseen circumstance to qualify for the reduced maximum exclusion.[ Edited by NewKidinTown2 on Date 07/18/2005 ]
Quote:"Of course, the sale must be by reason of a change in place of employment, health, or unforeseen circumstance to qualify for the reduced maximum exclusion."
So can the "unforeseen circumstance" be an unforeseen inability to pay your monthly bills or imminent bankruptcy. What if you can prove that by not selling your home you are unable to make your minimum monthly bills? Does anyone know if a situation such as that would qualify for the "reduced maximum exclusion."?
Unfortunately, the term "unforeseen circumstances" is a little vague so a generic response might not apply to a specific situation.
The generic answer is yes, some unforeseen circumstances that create a financial hardship (not already covered by change in place of employment or health issues) could create a financial hardship that would force the sale of your primary residence before you satisfy the two year rules.
Bankruptcy, by and of itself, is usually not an unforeseen circumstance, but rather an end result of something else. Now, if the accidental death of the primary breadwinner created the financial hardship that forced you into Chapter 7 bankruptcy resulting in the forced liquidation of all your assets to satisfy creditors, then you would qualify for the reduced maximum capital gains exclusion on the sale of your primary residence. The accidential death of the primary breadwinner would be the unforeseen circumstance, not the subsequent bankruptcy.
Generally speaking, an LLC is tax neutral. You pay the same amount of taxes due on a transaction with or without the LLC.
uncle sam will take his cut no matter what. your job is to make sure he takes the least possible. So make sure to keep track of all your cost even driving back and forth to the property since you can get credit for it...
I doesnt hurt talking to a CPA too...
100% only if you use 100% for work I believe, which means you should have two cars to prove to IRS. But with the insanly low interest rates, your payment probably would be the same with buying, plus you get a car in 5 years worth 8-15k, opposed to a couple of 1000s in tax savings.
MOjojojo_1- Thank you for responding........Help me understand.......you reccommend I finance a new vehicle vs leasing...
Thanks,
Trinijah1
there is a book by NOLO on tax savings for small business owners. I read about it a while back so it is not too clear, but stop by your library, or book store, and read the chapter on Finance or lease, it is only a couple of pages and you can read it and put the book back or buy, if you like it