Taxable Gain on a partial 1031 Exchange

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Taxable Gain on a partial 1031 Exchange

Craig Lessler
Investor · Scottsdale, AZ · Member since 2016 · 86 posts · 61 votes

Hello everyone.  I am doing a 1031 Exchange and want to verify the portion of the gain which is taxable.

1. Relinquished property is being sold for $159,000.

2. Adjusted Basis is about $60,000.

3. Fix up expenses to sell the property are $19,000.

4. Cost of sale are $9,000.

5. Replacement Property is being bought for $123,000.

6. Closing costs for the replacement property are $4,000.

Please provide me with your ballpark estimate of the taxable portion of the capital gain.

Thanks.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    8y

    When I spun the wheel, it said $23k taxable.....not sure how the depreciation recapture vs cap gains is distinguished.

    Can't tag Dave Foster.

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Craig Lessler, You'll pay tax on the rough difference between the net sales price of $159Kish and the net purchase price of $127Kish ($32K).  You are buying less than what you sold so the IRS views that as taking profit (boot).  Whether that is deemed to be recaptured depreciation first or gain first is a cpa by cpa preference.  If your total profit plus depreciation taken is greater than $32K then you will still have a savings from the 1031.  If your total gain plus depreciation is $32K or less then there will be no savings from the 1031.

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  • Craig Lessler
    OP
    Investor · Scottsdale, AZ · Member since 2016 · 86 posts · 61 votes
    8y

    Thanks.  Do the $19,000 fix up cost to get the relinquished property for sale and the selling costs get added to the basis of the replacement property?

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