1031 Exchange Question

[Matthew Wroe]

I am selling a paid for property in Indiana. I inherited the property six years ago. It has gone up in value approximately 200k. Total sale 600k. If I 1031 300k do I avoid taxes completely? Reduce taxes?  I am getting mixed answers. 

[Bill B.]

It’s gone up $200k in the 6 years since you inherited it? (50% in 6 years sounds like a keeper.). 

You get a free pass on all appreciation before you inherited it and you get to subtract all selling costs from the gain. So make sure you have a taxable gain. Assuming you do. I hope you and/or your accountant have been depreciating the property based on its value when you inherited it. If not, you will need a high level CPA to help you file amended tax returns inside you inherited the property. The IRS will tax you as if you depreciated it even if you didn’t, so this is important.  

The 1031 will help you avoid all taxes and all the recapture tax on all the depreciation you have or will take, thsi can also be huge savings. All you have to do is buy a replacement INVESTMENT property, not a new primary or vacation home, that costs $600k or more. AND, use all the “cash” you received from the sale. (The requirement will actually be a little less than $600k because you can deduct your selling costs.). You must not ever receive the money personally. You need a QI (qualified intermediary) in place before the sale closes.  

Ps. Feel free to reach out to me for more experienced amateur answers or to someone like @Dave Foster (The QI from BP I used for my 1031) for expert answers.  Good luck.