1031: lower cost replacement property

[Carl N.]

I am trying to understand what my potential tax implications would be in this example scenario.

1st property purchase:

$600k with $150k down 

Sold for $932,500

2nd property:

Purchase price $1,925,000

$385k down  

Sold for $2.25m  

Now let’s say I want to get a smaller property after that. Maybe $750k. 

What is my tax exposure and how do I calculate it?

[Jeff Nash]

@Steve K. is spot on with his reply and scrutiny of the wording.  In this case assuming the fact pattern is in the past tense and has already occurred, you might consider a qualified opportunity fund and using the cost basis in the relinquished properties to reinvest in replacement properties.  This decision of course would be based on your risk tolerance, investment objectives, time horizon and liquidity needs. There are other potential options too depending on the entirety of your situation.