1031 Question
Here is the situation. I bought a home owner occupant, lived in it for several months moved out rented it and the tenant wants to buy and can qualify. I have owned the property for around 4 months.
What are the tax implications, can I 1031 this property in this short amount of time?
what about the fact that I bought it owner occupant?
Thanks
GF
[ Edited by TheGodFather on Date 10/28/2006 ]
What are the tax implications, can I 1031 this property in this short amount of time?
Short term capital gains tax treatment would apply. Yes, this property can participate in a 1031 exchange.
what about the fact that I bought it owner occupant?
What about it? Nothing. Forget about it.
The fact that I bought the property owner occupant 4 months ago has no implication in this situation?
The real issue here is whether you had the intent to hold the rental property for investment or really decided to move out of it and rented it out so that you would qualify for 1031 exchange treatment. This is the question that you will be confronted with if you get audited. If you can support the chronology of events with good, valid business reasons and demonstrate that you did in fact have the intent to hold the property for investment after you began renting it out but got an offer from the tenant that you could not pass up, then it will qualify for 1031 exchange treatment. If not, then it will be considered to be held for sale and not subject to 1031 exchange treatment.
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This would be self-dealing and classified by the IRS as a prohibited transaction.
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Is it his primary residence or investment property?
Was this a rental property, personal residence, flip, or something else? How long did you own the property?
How have you reported this and treated this on your financial statements (if any) and your income tax returns. If you have held this as investment property and treated and reported this as investment property (once the original intent fell through) you can complete a 1031 exchange into another investment property. I would be happy to talk with you about it further, if you like. Just email me.
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No, seller is liable for capital gains taxes if they have them.
Seller will owe based on the difference between what they paid, plus the capital improvements made to the property and the sales price less selling expenses.
What is the FMV of the house today?
Has the seller lived there as their primary residence for 2 of the last 5 years? If so they would not have any cap gain taxes on these amounts.