Can I 1031?

Question

Hey all, I am not looking for legal advice, but just general information. I own a condo in San Diego with about 300k of equity in it. I bought this as a primary residence years and years ago, before I met my now wife. I am wondering if we were to sell, does her name need to be on the title of the home so we can use the 1031 amount of transferring up to 500k as a married couple even though she is not on the title or deed? I do not mind adding her to the deed, because the juice is definitely worth the squeeze, but is this allowable?

Cheers,

Nick

Cheers,

Nick

Twana Rasoul · Answer

@Nicholas Creahan Hi Nick, you are mixing the 1031 and the owner occupied tax exemption.  If you and your wife lived there 2 of the last 5 years then you can sell with that 500k exemption married or 250k single....otherwise it would be an investment property and at that point your option would be to do a 1031 exchange and move all your equity to another property to complete a tax deferred exchange.   Another option if you don't want to sell is to do a cash out refinance, or if you have a very low rate then you can look into getting a second mortgage to keep your initial interest rate in tact.

Account Closed · Answer

With a 1031, you still have to pay tax, just later. A 1031 exchange doesn’t make capital gains tax go away; it just postpones it. A capital gains tax bill will come due at some point, so prepare for that. However, if a 1031 property remains unsold at the time of the owner's death, heirs of the property may be able to minimize or altogether avoid the tax implications via a stepped-up cost basis.

Nate Meeker · Answer

@Nicholas Creahan - The other members are correct, the 500k exclusion is for a primary residence and the 1031 is for investment property without limits.. just strict constraints.Some realtors might think the only option to avoid taxes is a 1031, but that is not true.

As a CPA and Realtor, I can help you run the numbers and do a "lazy 1031" - no restrictions... sell towards the beginning of the year, and have all year to find a replacement property, get a cost segregation done, and the depreciation from your new property will offset the gain on the old. Of course, all the numbers need to pencil out. There are also 721 exchanges, DSTs, and QOZs. Lots of options depending on your goals.

Joe Vesey · Answer

Have you rented the condo out (held it for investment)?  The exchange requires that you hold the property for investment - one of the other requirements is the same taxpayer requirement - basically how you sell is how you have to buy.  So if you are on title individually then you should buy the replacement property in the same manner.  The $500k exemption applies to your primary residence and requires that you lived in the property in 2 of the 5 years prior.  So, it sounds as if you could potentially utilize a 1031 or utilize the 121 exemption, but not both.  IMHO.  @Dave Foster can clarify on this topic.

Nicholas Creahan · Answer

It would be for another investment property.  am not too fond of the fact that my HOA is damn near 400 a month. If I can move that to another property or two, that would be ideal! I see you are a Broker in SD, so I will send you a PM. Thank you!

Kenneth Donaghy · Answer

@Nicholas Creahan looks like you are getting good advice, and you were trying to combine the two options. Do you want to transfer that 300k of equity into another investment property? Or do you want to use some for other reasons?

Nicholas Creahan · Answer

Lauren, thank you so much for your thoughtful and informative response. This is beyond insightful, I will definitely consult my tax guy!

Lauren Speidel · Answer

@Nicholas Creahan Have you been filing a joint tax return with your spouse? If so, then she may already be considered an owner of the property. So, when you purchase your replacement property you can purchase in your name or both of your names since CA is a community property state. I would definitely consult with your tax advisor to make sure that you didn't have an agreement prior to marriage, or you chose to report the property specifically as your asset, either one of those could change this situation.

With that being said, there is currently no limit to how much you can defer in a 1031 Exchange. You could defer all of your tax liability with a 1031. With a primary residence, a married couple who has lived in the property 24 out of the past 60 months can exclude 500k of gain from their income.

Account Closed · Answer

Some basics. If you have lived in the property for 2 of the last five years, there is a tax exemption.  You ask a good question though, that a qualified 1031 intermediary (Or CPA) who will most likely pop up shortly,
that can answer about your wife's exemptions.

1031's are for investment properties, not personal residences. There are strict rules.

Here are the rules https://www.irs.gov/taxtopics/tc701

Kenny Simpson · Answer

Looks like you are getting good advice on here.  If you need any help with your new purchase or have question let me know.  Good luck :)

Can I 1031?

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