HELP With 1031 Exchange.......???
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Hi , I bought an empty lot in Signal Hill Ca for 180k, I had to pull out 60k from my current house to make the down.
I am a Contractor and was going to build the properties but my business is waaay too busy at this time to build so I put the property up for sale for 280k
and I am currently in escrow. I am looking for an easy way to get the most $$ back from the transaction and still pay my 2nd back on my house.
My realtor has told me that I cannot use the $$ to pay my second back or I will have to pay capitol gains on it.
Is there another way around this so that I can pay the second back then put the 100k into something else?
Thanks soo much for your help
If you want to do a 1031 this needs to be in the agreement with the buyer of the old property.
Maybe Im missing something but I dont see how you can get 60k out to repay the 2nd w/o tax.
Whether it is cap gains or income depends on how long you've owned the lot.
But - you can buy an income property and use the income from it to pay the interest on the 2nd. You come out with 160k - your down plus your gain. Roll the 160k into a 200k condo - take a loan on the condo for 40k - monthly payments almost nothing. Use the rent proceeds to pay down the 2nd on your house. I'll help you find the condo if you like.
Am I missing something?
Dick
I have had the property for about 3 months.
I got a good deal on it, but its a nightmare to build up there with all of the view protection stuff and my business is swamped.
what you said sounds like a good plan but alot of risk or?
There are other threads that discuss the problem I'm going to mention only briefly here. The problem is that you look like a dealer on this property.
Relevant factors:
You're in the biz.
You bought it to build on & sell.
Your holding period looks like it's going to be very short.
Dealers can't use 1031. You may want to talk to a tax professional (Atty or CPA) to look into what you might do to mitigate the possibility of being called a dealer with respect to this property. But right now, the intent you've expressed in this thread is dealer intent, hence 1031 would be inappropriate.
Think they will call me a dealer?
I bought the property to build a house for my wife and I and was planning on renting ou tour current house
Quote:
On 2003-10-17 14:07, summeraa wrote:
Think they will call me a dealer?
I bought the property to build a house for my wife and I and was planning on renting ou tour current house
It looked to me like you were building on spec.
But you bring up a different issue ... that property was intended for personal use, not as an investment. Again, the intent you bought with wouldn't qualify for 1031 treatment. Lots of hairsplitting goes on in this area of the tax code, obviously. Changes in plans can cause changes of intent.
Right now, your intent is investment. You're just holding the investment in the wrong format (one where it generates no cash flow to support that 2nd mortgage).
You need to talk to a CPA or tax attorney about structuring your paperwork such that 1031 is appropriate, and then you need to get into a property that can cover paymnets on your 2nd.
Thanks for all your help!!
BTW know a good cpa or tax atty in So Cal?
Unless I'm wrong you are currently on a path that will cause you to have 100k in ordinary income with the associated tax.
I suspect you really intended to build on it and then lease out the property as an investment, but then there was a problem that required you to sell. Onerous zoning requirements for example. In that case you could try the 1031 route.
I suppose you even have plans that you intended to use for your investment rental property.
I suspect that it makes sense to go the 1031 route, since it sounds like you can justify it. The worst is that it gets disallowed if you get audited. As I understand it, the issue is intent. Lots is wtritten on this - maybe some of it here in the archves.
BUT - if you intend to go 1031 you may be too late since your intent to do this needs to be in the deal between you and the buyer, thus I would run not walk to any cpa or atty who has any kind of credentials.
The escrow house can explain to you the details of how you documnt the 1031 deal, since they have people on staff who do the 3rd party role required in a 1031 exchange.
My favorite RE atty and CPA are both passed away now or else I'd recommend them.
If you can go 1031 route, I would consider something that is easy to rent, like a condo, however commercial property is also a possibility. Commercial mkt is waek right now, whereas the residential property - as you know - is HOT in the LA area.
Good luck.
THX!..
Yeah I did a counter offer through my realtor to add the 1031 exchange