All Forum Posts by: Justin Summers

I bought a small RV park under a multi member LLC, that needed a ton of work in 2020 for $250k and sold it about a year later in 2021 for $450k after putting in about $150k in work/repairs/upgrades. I'm doing my taxes now and am a bit confused.

I realize that most of what I'm doing is going to be capital improvements.  Replacing Electric and full renovations of bathhouse, ect.

The issue is how to enter them (Capital Improvements) in turbo tax business.

I have entered the value of the buildings portion of the property (Purchase price - land value) as a depreciable asset in turbo tax) but I'm a bit confused about where to enter the capital improvements.

I'm assuming this is treated as a rental property even though it's more commercial. 

Under "Rental real estate income and expenses" I have (see below)  WHERE DO I PUT CAPITAL IMPROVEMENTS? as I sold the property in 2021 and need to claim them.

Bought a house for $225k and sold it for $425k  so roughly $200k in capital gains. 

I did a 1031, 5 months ago,  and identified $800k worth of properties (200% rule) Looks like I am only going to be able to buy either $160k or $260k worth of the identified properties, not the required $400k-425k

My question is :  Does 1031 have any savings effect on my taxes when only buying $160k or $260k of properties?  or should I just dissolve the 1031 and tax like a normal sale? 

Thanks

justin

Thanks @Dave Foster for your wisdom.

My QI told me that I have to spend just $400k.. (My sales price minus my costs to sell) on replacement properties but most everything I have read online says you have to buy replacement properties equal to the sales price of the properties that you have sold (without mention of deducting expenses" .

QIs are human and none of them know all the answers. So, by posting here it serves but to ensure I'm getting the correct answer to my questions and also to educate others with the same questions. 

Also, I know if someone gives an incorrect answer here they will always be someone else to correct them.

I sold a rental for $430,000 and  deducting commission , closing help and transfer taxes were about $30k So, I am at $400,000 after deducting expenses of the sale.

Question 1-   Do I need to buy $400k in total replacement properties or $430k? (I'm going to assuming it's $400k for my remaining questions)

I am nearing the end of my 45 period to identify replacement properties.  I have already purchased and closed on 1 property for $160k. I had to post the deposit of $15,000 of my own money (not from my QI) and while I realize I could have gotten credit back on the closing statement for that deposit I did not. So, the QI sent $145k to close on the $160k property. 

Question 2-   Does this property count as $145k toward my $400k replacement amount or $160k? 

I'm having trouble finding properties to buy so I am going to use to 200% rule to identify property I may purchase. over the next few months. ( Again assuming the answer to you first question is $400k) I have $800k worth of property I can identify. 

Question 3- Does this first property I have already closed on come off the the $800k even though I have already closed?  Meaning I now only have $740k worth of properties I am allowed to identify? Or since I already closed to I still get to identify $800k worth of property? 

Sorry that was 3 questions!!   Thanks for your help in advance

I'm doing a 1031 and am planning to use Brian Greene with discount1031exchange.com but started to think how do I even know if this is a real business.. The attorney Brian Greene seems to check out but how do I know that "Brian Greene" is actually who I'm talking to and not just someone that setup a website using his name & Credentials?  Just wondering how I should check out and do due diligence on a 1031 exchange QI Before wiring them $500k from my closing.

Thanks for any input.

A good friend of mine just sold his rental and is in his 45 period and can't find much out there that is not over priced. He is worried that since he has to identify properties in the next 45 days and  buy something in this market he may paying inflated prices and lost money when he sells in the future.  I just moved out of my primary home and rented it out for 2 years.  I'm planning to move back into it after I retire in 3-5 years. I have about $500,000 appreciation in the property

This is what I was thinking. I could sell him this property for $800k and he would satisfy his 1031 exchange. I would have to pay little capital gains on the sale considering I'm married and fit all the other $500k exclusion parameters.  I would like to have agreement to buy the property back  after the current tenants move out in 2 year for the same price I'm selling it to him..  He would be happy getting the rent for 2 years and knowing that he is not going to lose money on the sale. I would be back into the property in 2 years with a new basis of $800k instead of my current $300k basis..  It seems like a win/win.. (I could use the $800k for the next 2 years myself and get a better return than if I kept the property and collected the rent on it.

How would the irs view

1. Him buying an 1031 property and then selling it back to the same owner 2 years later? 

2. Me selling my primary resident and getting $500k profit tax free and then buying the property back 2 years later? 

@Michael Plaks  Thank you for explaining.  I did not know about the qualified use congress enacted  but have read up on it.  Just 2 quick questions. 

1.  I would have had to sell and closed on the property by June 2021 to meet the 2 of the last 5 years rule,  If I had not moved back into the property and it not sold and closed by June 1, 2021 I would have failed the 24 months out of the last 5 years rule and not been able to exclude any portion of the gain, Correct? 

2. As I understand it now my qualified portion of ownership is 31/71 or roughly 43.6% as of now. I didn't put numbers in my original post but my "gain" is going to be roughly $1,200,000.  . 43.6% of that would be qualified or $524k.. Since this if above the $500k limit wouldn't I be able to use the whole $500k exclusion?  (I would I would pay long term C.G. and investment surtax and the balance of gain between that excluded and what I realize of roughly $700,000.  $1,200,000 Gain - $500k exclusion. 

Or am I totally off base on this and the qualified portion is a portion of the $500k exclusion not a portion of the Capital gain? 

I have sold 1031 and am now looking for replacement properties for the next 45 days.   I usually buy properties from wholesalers or directly at foreclosure auctions.   A few questions.

If I buy at a foreclosure auction at the courthouse. (Trustee sale)

1. Can I pay the 10% deposit from my own funds and then have the balance paid at closing by the QI?  Or do all the funds for the Purchase need to come from the 1031 funs the QI is holding? 

it just seems like a lot of trouble to get a cashiers check from the QI for the deposit on each foreclosure I'm interested in bidding on not knowing if I'm going to be the successful bidder or not.  For example $200,000 purchase / bid price - I pay the 10% deposit from my own funds $20,000 and the Qi pay the remaining $180,000 + closing costs at closing ?   Would like count as using $200k or $180k of my 1031 Purchase requirements? 

2. I have read that the seller (Trustee in a foreclosure) only needs to be "Notified" of the 1031 and doesn't really need to sign anything .. Is this true?  

3. Any other pitfalls with this other than the sale being delayed outside my 180 days for closing.

I also buy from wholesalers..  Can this work in a 1031? 

Wholesaler has the property under contract for $180,000 and is selling to me for $190,000. Can I pay him the $10,000 assignment fee either on the HUD or outside of closing and assume his contract? Would the $10,000 assignment fee be paid from my QI held funds or would they need to be paid from my own personal (Non 1031) Funds .

F

Something else to point out.. Make sure to check with the local zoning office to make sure that short term renting is legal.. Many realtors will tell you oh.. everyone does it.  Make sure it's legal or else the city decides to crack down on the illegal short term rentals you will be screwed.. Miami Beach did this and started fining people $20,000 for the first offense of renting short term and $40,000 for the 2nd offensive.  some owner's got hundreds of thousands in code fines.