All Forum Posts by: Scott Green

Eric, Johnathan is right on.  The gain on your residence is a function of what you originally paid for the property + capital improvements = your adjusted basis in the property (how much you owe on the property doesn't factor into the equation).  You subtract that number from your sales price less closing costs, and you have your capital gains that would be realized on the sale of your primary residence.  You exclude $250k of the gain if you file singly.  What you reinvest in doesn't affect the amount of the exclusion.  The 1031 works only for investment property thus it is a non-factor.  Bottom line is that if your gain is under 250k, you won't recognize any capital gains taxes.  If it is over 250k, you will pay some taxes in the sale of your residence.  Good luck with your move to Spokane, home of the Zags....

@Steven Rich  That is a good play in using the 1031 exchange to defer the taxes, and then with the appropriate timing in place, you can convert the property to a primary residence.  Under those rules you can exclude up to $500,000 of gain.  However, don't forget that you have depreciation recapture that will require some taxes to be paid in this type of maneuver.  Keep on building and growing your portfolio.

Senate Bill SB 939 is being introduced in the California Legislature, which will seriously impact all our livelihoods. SB 939 is being heard tomorrow, Friday 5/22/20.  

In short, it allows tenants to occupy property without paying rent for over a year. It also allows tenants to cancel their lease and walk away leaving the landlord holding the bag.

• SB 939 makes it illegal to even serve notice to terminate a tenancy until a FULL YEAR AFTER the State’s COVID-19 Emergency Order expires.
• SB 939 gives one party the upper hand by making the common act of serving a notice to terminate tenancy a VIOLATION OF THE STATE’S UNFAIR BUSINESS PRACTICES and creates a $2,000 penalty.
• SB 939 enables the confusing patchwork of local ordinances on the same topic making it even more complicated for any business that has buildings in multiple jurisdictions.
• SB 939 allows restaurants, bars and entertainment venues with a decline in revenue as compared to before shelter in place and facing an ongoing reduction of capacity to engage in good faith negotiations with their landlord to modify any rent or economic requirement regardless of the term remaining on the lease.
• Under SB 939, should the tenant and landlord not be able to reach a mutually satisfactory agreement, the tenant shall have the option to terminate the lease and not be liable for more than three months rent from the start of the SIP to cover the entire rest of the lease term.
• Under SB 939, any third party guarantees will expire with the lease termination.
• SB 939 will be in effect for at least 22 months from March 2020 until December 31, 2021, OR two months after the end of the state of emergency, WHICHEVER IS LATER.
• SB 939 does not apply to any publicly-traded company or a company that is owned by or is affiliated with a publicly-traded company (franchisee), creating even more unfair treatment of businesses.

@Mike O. at the worst, if your tax preparer is competent in preparing your taxes, this forum can steer you in the right direction with 1031 concerns or many other aspects of real estate.  It isn't your legal counsel, but guidance to get you headed in the right direction if you pose the questions about investing in real estate.  Many have been through the process and are willing to share.

@Davidfoster We've seem a few of those come and go with the phone call the day after closing trying to figure out if it still works.  That is the worst call when you have to tell them they are a "day late and a dollar short."

I would agree with @David Foster.  Many CPA's are knowledgable about the various aspects of real estate.  They recognize the tax savings of the 1031 exchange.  In their defense, it is hard to be a pro on every aspect of the tax world.  When you see 20,000 exchanges come and go, you catch all the nuisances of the 1031 maneuver.  It is in our everyday world.  A CPA will see it from time to time.  We too appreciate the CPA's who are dialed in and contribute to this forum.

That is good news for many clients in the middle of transactions. It has been difficult for them to be out and about searching for Replacement Properties. This seems to make sense for all parties involved in 1031 exchanges.

There are some open questions remaining to be clarified. What if a transaction was completed after April 1, and proceeds had been distributed to the client? Can the client return proceeds and take advantage of the longer time-period? The taxpayer has until July 15 for time-sensitive actions, or deadlines are extended 120 days, whichever is later. That probably will be sorted out in the future. Finally, we don't know if this will be the last notice on the issue if clarification needs to be made. Some practitioners feel the time frames should move back to March 13 when the FEMA emergency declaration was declared.

@Michael P. Delaney Lauren spells it out perfectly in her comments above.  I'd gently recommend to your tax preparer that they review that concept.  It is hard to be the expert on all tax topics, so hopefully they will come around and you will get the tax deferral that was intended.

I've seen a few 1031 cancellations over the past few days. Buyers seem to be pulling out of deals. I'm not surprised, but business is still moving forward. Keep an eye out for potential updated time frames and extensions in the 1031 arena. This has occurred in the past when natural disasters have made complying difficult. I will try and update if we get something definitive.

All good counsel from the comments above.  If you determine that moving on to another investment makes sense, and is financially prudent, then don't forget the 1031 exchange that will allow you to defer the taxes on the sale.  That way you can move all of your money into the replacement property.