All Forum Posts by: Mark Caragio

Thanks for the replies...I'll study a bit and come back if anything is unclear.

We have a property acquired in a 1031 exchange, which we rented out for 2 years and then converted to our primary residence.  We are approaching year 5 of ownership and plan to sell eventually, but not sure of the tax implications of renting out again before selling.  I know the first 2 years of this scenario are non-qualified years for the 121 exemption, but if we move out and rent again, will these following years be qualified or non-qualified?

So, if we sell at year 5, I know we can exempt only 3/5 of the capital gain.  But, say we sell at year 8 after moving out and renting three more years...would we be able to exempt 3/8 or 6/8 of the capital gain?   There is almost $500k in cap gains on this property, so I need to get this right. :-)

After a 1031 exchange, my replacement properties are now generating taxable income.  These gains are offset in regular taxes by passive loss carry forwards, and not taxed until I run out of these carry forwards (I believe).  But this new income is fully taxed under AMT.

This makes it seem like the past losses have no value whatsoever.  The past losses will continue to decrease in regular tax until they get to zero, but I'm paying AMT taxes on every penny of them.

Do I have this wrong?  Is there any way to capture value for the past losses in this scenario?

Thanks for that info.

I was told, not being a pro at this, that the developer has tied up the property and will try to get me to lower the price.

Being that I believe this to be true, and don't want this to be tied up for another 2.5 weeks, can I get out of the contract based on the fact that the buyer did not make the earnest deposit within the 3 day requirement AND the deposit was less than what was specified in the contract?

My plan with this is to insist the buyer remove the contingency within a couple of business days OR I will cancel the contract.

Everything in the contract seems to be a boilerplate offer. The below text seems to be the only text that addresses buyer cancellation.

Does the language in paragraph 3 give the buyer the right to cancel for any reason?

B. (1) BUYER HAS: 30 Days After Acceptance, unless otherwise agreed in writing, to:
(i) complete all Buyer Investigations; review all disclosures, reports, lease documents to be assumed by Buyer pursuant to paragraph 8B(5), and other applicable information, which Buyer receives from Seller; and approve all matters affecting the Property; and (ii) Deliver to Seller Signed Copies of Statutory and Lead Disclosures and other disclosures Delivered by Seller in accordance with paragraph 10A.
(2) Within the time specified in paragraph 14B(1), Buyer may request that Seller make repairs or take any other action regarding the Property (C.A.R. Form RR). Seller has no obligation to agree to or respond to (C.A.R. Form RRRR) Buyer's requests.
(3) By the end of the time specified in paragraph 14B(1) (or as otherwise specified in this Agreement), Buyer shall Deliver to Seller a removal of the applicable contingency or cancellation (C.A.R. Form CR or CC) of this Agreement. However, if any report, disclosure or information for which Seller is responsible is not Delivered within the time specified in paragraph 14A, then Buyer has 5 Days After Delivery of any such items, or the time specified in paragraph 14B(1), whichever is later, to Deliver to Seller a removal of the applicable contingency or cancellation of this Agreement.
(4) Continuation of Contingency: Even after the end of the time specified in paragraph 14B(1) and before Seller cancels, if at all, pursuant to paragraph 14C, Buyer retains the right, in writing, to either (i) remove remaining contingencies, or (ii) cancel this Agreement based on a remaining contingency. Once Buyer's written removal of all contingencies is Delivered to Seller, Seller may not cancel this Agreement pursuant to paragraph 14C(1).

We recently accepted an offer to sell a property, and there is a 30 day "due diligence" contingency.

Being that we are selling as a development opportunity to a developer, I'd like to know under what conditions the buyer can back out based on results of the DD?

The earnest money has been deposited, the buyer placed an "As-Is" purchase term in the contract, and the ground work for the development is all but complete (city approvals, complete plans/engineering, permits will be issued within the next week or so, etc.).  I have forwarded all pertinent docs to the buyer, know that the buyer has been in contact with the city and the architect, and I've given permission (at the buyer's request) to release stamped plans to the buyer.

Assuming there is nothing abnormal about the property or the status of the development, can the buyer back out because the DD would indicate that the price was too high?  (I expected to develop this property myself, and was surprised to get a satisfactory price from a developer.)

K...and my scenario will be more than intent.  It is demonstrable that it has been rented for the last 7.5 years, and we will rent out the replacement home.  Not sure how the IRS could interpret any other way (assuming we do indeed rent out the replacement home).

@Brandon HallIt is a rental property now, that I am adding value to prior to selling it.  I will also rent out the 1031 replacement property.  No other intent there other than rental real estate investment.

I have an offer on a property I am developing, and I am wondering if there is a way to keep my ultra-low property taxes via Prop 90 (CA prop to transfer basis to replacement home).  The situation is as follows:

- I owned and lived in this home for 25+ years
- 7 years ago we moved to Idaho for work reasons, and rented out the property
- We plan to come back in a few years (4 max)
- I recently learned that I could subdivide this property and build 2 new homes (and have been working on that; it is now approved and soon to be subdivided)
- I have an offer on the property that is high enough for me to consider selling instead of developing myself
- Since I can sell the property before subdividing, there is an opportunity to keep my low tax basis via Prop 60/90 (I'm 55)
- Since we are not coming back for a couple of years, I also want to take advantage of the 1031 exchange rule, and purchase a replacement home with the proceeds, then rent until we return

With the above in mind, is there any way to keep my low property tax basis, not using the home currently as my primary residence?

@Brandon Hall Thanks for the clarifications.  Although this will be a spec build, so to speak (as I plan to sell both units after construction), I have owned this property for more than 20 years and have rented it the last 8 years.

I also plan to do a 1031 exchange with the proceeds, to purchase a like rental somewhere on the peninsula (and perhaps move into for retirement).

I do not do this for a living, and this is the only property I own besides my primary residence.

With the above in mind, will the donation be applied to my income taxes under Schedule A, or somehow applied to the basis of the replacement 1031 home?  We expect the amount of the donation to be about $130k

Thanks for the fire donation idea; I'll check that out further.

I do, btw, have a deconstruction company lined up for the job, and an estimate from an appraiser (for what he'll charge to appraise the amount of materials to be donated).