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1031 Exchanges

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Kyle J.
  • Rental Property Investor
  • Northern, CA
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1031 exchange question

Kyle J.
  • Rental Property Investor
  • Northern, CA
Posted Dec 6 2012, 08:39

A friend of mine is looking into doing a 1031 exchange on some property; however, he's getting some conflicting info on one aspect of it so I thought I'd ask the experts here.

Here's the situation:

He is selling some vacant land that he's owned for several years and is going to buy a rental property.

He originally bought the vacant land for roughly $80k and is selling it for $140k.

The rental property he is buying is $275k.

He would like to only do the 1031 exchange using the $60k profit (capital gain) on the vacant land he's selling, and keep the other $80k (original purchase price amount for the land) for other purchases (possibly not real estate related).

The 1031 tax company (intermediary) has told him that he must put the entire $140k (selling price of the land) towards the purchase of the new property. However, his tax preparer is saying that it would be okay for him to put just the $60k profit towards the new property.

Clearly, both of these can't be true.

My friend's argument is that he has already paid taxes on the original $80k he used to buy the land, so why can't he just roll over the $60k profit and avoid the captial gains tax on the whole amount.

I wasn't sure one way or the other, so I thought I'd ask the experts here to see if anyone knows.

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