Question on Basis of Replacement property at future sale

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Question on Basis of Replacement property at future sale

Ray Slack
Investor · White Haven PA · Member since 2014 · 362 posts · 221 votes

Example.  I bought a property for 100k and sold it for $500k  so, I have $400k profit.

I 1031 the property  above property and buy 2 properties one for $400k and one for $100k. 

a year later sell the $100k property for $150k

How would my basis in the property  I just sold for $150k be calculated? (Not talking about including expenses and selling costs and stuff)

I'm thinking it would be transferred proportional to the original basis I had in the first property I 1031ed.  So, about $20k basis give or take? 

I hope this makes sense.

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Ray Slack, You can't just use purchase price to determine your basis.  You also have to add capital improvements and subtract depreciation to get at your real adjusted cost basis.  But to get close for illustration purposes, You're pretty close on that $20K basis in the second property.

    The 400K profit would have been allocated between the two purchases (actually the basis would have been allocated but that takes the profit along with it.

    So maybe $320Kish profit to the large property and $80K ish to the smaller property (making it's basis around $20K.


    Sell that property for $150 and you'd pay tax on $130K ish.

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  • Ray Slack
    OP
    Investor · White Haven PA · Member since 2014 · 362 posts · 221 votes
    5y

    Thanks Dave.. That is what I thought.. I do realize about everything that goes into determining basis but was just trying to simply the question..

    Thanks again ! !

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