Exchange
When doing a roll over to avoid the capital gaines tax...why can't the replacement property be a primary residence. Why does it have to be another investment. 
When doing a roll over to avoid the capital gaines tax...why can't the replacement property be a primary residence. Why does it have to be another investment.
Hello Wcollins, where did you get this idea? You can take your profits for the sell of any capital gains and place it into real estate and not have to pay capital gains tax for that tax season. Go to the IRS web site I think it will be covered under 'exchange' and part of the 1031 information section.
Quote:
On 2003-01-16 13:36, wcollins wrote:
When doing a roll over to avoid the capital gaines tax...why can't the replacement property be a primary residence. Why does it have to be another investment.wcollins,
I assume you are referring to the IRC 1031 rules on tax deferred exchanges. The rules specify that only like-kind property qualifies for this treatment and further restrict qualifying property to property used in trade or business or held for investment use.
Under the like-kind rule, investment property must be exchanged for other property used for investment purposes. In a 1031 exchange, the capital gains taxes due are just deferred until the replacement property is sold. In the end, the government still eventually collects its taxes.
Now, enter the capital gains exclusion rules on the sale of a primary residence (property held for personal use). Under these rules, after meeting certain requirements, you can sell your primary residence and keep all the profits tax free -- not tax deferred, but tax free.
The framers of the tax code recognized that allowing you to convert your profits from the sale of an investment property into equity in your primary residence would deny the government an opportunity to collect its taxes from the tax-deferred exchange. Hence the prohibition against acquiring your primary residence through a 1031 exchange.[ Edited by DaveT on Date 01/16/2003 ]
Quote:On 2003-01-16 14:49, Vern wrote:
Hello Wcollins, where did you get this idea? You can take your profits for the sell of any capital gains and place it into real estate and not have to pay capital gains tax for that tax season. Go to the IRS web site I think it will be covered under 'exchange' and part of the 1031 information section. Vern,
The tax code is very specific on what property qualifies for 1031 tax treatment. Only property used in trade or business, or held for investment use qualifies. You can not just use "any capital gains".
The sale of other assets such as your primary residence, stocks and bonds, etc. may generate a taxable capital gain, but that property is not eligible to participate in a 1031 exchange. Even if that gain is used to purchase real estate, the gain is taxable in the year it is realized.
Too right Dave, I looked over the tax codes after I opened my mouth about the exchange from investment property to personal property. Darn, this is the first time that I have been wrong all year. I wanted to get back on the site to correct my mis-information. Thanks Dave for the repair of bad information (laugh).[ Edited by Vern on Date 01/17/2003 ]