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A few 1031 Exchange Scenarios

Submitted by on October 25, 2009 – 11:27 AMNo Comment


The world of 1031 exchange is complicated.  That’s why I have Leonard Spoto of Asset Exchange Company as part of my team for my investor clients since there are so many different exchange scenarios.  A few are below as provided by Leonard.

Investors and real estate professionals call our office every day seeking assistance with interesting or complicated 1031 Exchange scenarios.  Below are a few scenarios that we thought might be helpful to share:

Buy and sell in Nevada, avoid taxes?
A young man living in California called our office under the impression that if he owned all his rental properties in Nevada (which has no state tax), he could avoid paying California state capital gains taxes upon the sale of the properties.  This is incorrect.  All California residents are obligated to pay California taxes regardless of where the money is made!

Become a Nevada resident, avoid taxes!
The good news is that if you live in a state with no state taxes, the sale of your property is tax free.  The bad news is that if you live in a state with no state taxes but make money in a state with taxes – you’ll owe the state the tax.  Money made in California for example, is taxed by California…regardless of where the person lives.  The current California capital gains tax rate is 9.3%.

Mobile Home Exchange?
Simply put, if it doesn’t have a foundation, it’s not real estate.  Mobile homes without foundations are considered personal property and can not be exchanged for real estate under Section 1031.

My Home is Worth Too Much!
A homeowner called our office with a nice problem.  The residence she purchased for $100K is now worth over $1MM.  The problem is that the gain ($900K) is more than the homeowners exemption allows tax free ($500K for a married couple).  The solution: rent the home out before selling it and combine both the 1031 Exchange and the homeowners exemption to avoid and defer the entire tax liability.

If you have any questions about how to structure your transaction to minimize your tax liability please call 877-471-1031.

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