Can I exchange my personal residents for a duplex? - Posted by Robert MI

Posted by Dave T on June 17, 2001 at 01:41:06:

Ron,

Go back and read my post again. I specifically said that NEITHER side of the transaction qualified for 1031 tax treatment, and then went on to explain how either side of the “exchange” could be eligible for the capital gains exclusion.

Can I exchange my personal residents for a duplex? - Posted by Robert MI

Posted by Robert MI on June 16, 2001 at 12:47:49:

I just finished building my wife’s dream home and have put this one up for sale.

It has been two months and we have had a few lookers but no offers. I see that there is a duplex for sale and he is asking the same price as me.

I talked with him and he told me he lives in one side and rents the other side out.
He wants to sell and buy a house he is getting married.

?? Can we exchange or trade? And how does it work?

Thanks
Robert mi.

Of course you can, but - Posted by Dave T

Posted by Dave T on June 16, 2001 at 21:03:34:

You have to structure the deal as a sale and a purchase. Your buyer gives you his property as consideration for your house, and, you give your property as consideration for his duplex.

Two purchase and sale agreements, and a simultaneous closing.

Now for the financing. Is there a mortgage on either or both properties that need to be taken care of? Just buy each other’s property “subject to” the existing mortgages (deed each property to a separate land trust, and assign beneficial interest to the other party). Since neither sale qualifies for 1031 like-kind exchange tax treatment, both ends of the transaction will be treated as a sale for tax purposes.

Yours will qualify for the capital gains exclusion if you meet the two year ownership and occupancy tests. The portion of the sale of the duplex attributable to your buyer’s primary residence will also qualify for the capital gains exclusion if he also meets the two year tests.

No Tax up to $500,000 Gain - Posted by Rolfe Kurtyka

Posted by Rolfe Kurtyka on June 16, 2001 at 15:28:42:

Robert;

If you have lived in the residence you are selling for at least two of the last five years, you will NOT have to pay any taxes on a gain of up to $500,000 ($250,000 for single folks) generated from the sale.

You are NOT allowed to use a tax deferred exchange (1031) involving your personal residence. A tax deferred exchange is only allowable for use with income producing property. Again, you most likely will not be taxed on the sale of your residence.

As far as “trading” properties, that’s an area I know nothing about. The IRS has a worksheet (2119, I think) which a seller uses to show gain upon sale of a home. A quick glance at my tax guide (J.K Lasser) reveals no information regarding “trading” residences.

Rolfe

Re: Exchange of pers. resid. for a duplex? - Posted by Travis (Dallas)

Posted by Travis (Dallas) on June 16, 2001 at 15:09:29:

See other posts on 1031 Exchanges to help with tax issues. I think you need to exchange a rent house for rent house & not personal res. for rent house…like for like. I’ve forgotten the details.
Since it is your personal residence & you are moving into another personal residence, you shouldn’t have to worry about tax issues. I think you would just write up a contract to purchase his duplex and he would write a contract for the same amount to purchase your house. Should be easy to do.
Sounds like you are a smart guy, keeping the wife happy by building her dream home.
In Texas we say, “Treat your wife like a Thorough-bred & she won’t be a Nag”. Also, "If Momma ain’t happy, ain’t nobody happy"
Good luck.
Travis

Re: Not legal any more… - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on June 16, 2001 at 14:21:05:

to trade people (residents) for property. As a matter of fact it is not even legal to own people any more.

Just curious as to what you had in mind anyway. Perhaps a wife and two kids for, say a 3 bedroom, with 2 baths. Or perhaps a wife and four children with an option on two lovely in-laws for a four bedroom, 3 bath, with an in-ground pool.

No residents (people) and real estate are not the same kind of property, and so could not be exchanged legally.

OPPS–My error on the earlier post. - Posted by Ronald * Starr

Posted by Ronald * Starr on June 16, 2001 at 23:43:20:

Dave T-----------

I apologize–my earlier post was in error. I reacted too quickly without reading the entirety of your post.

You are correct with the information you have given to Robert in MI.

If the duplex seller wants to attempt to do a tax-free exchange, the seller could rent out part of the house after moving into the other part of the house. Then the house would be both a personal residence and an investment property, as was the duplex.

I am sorry I acted hastily.

Good Investing and Good Posting****Ron Starr

Re: Of course you can, but - Posted by Ronald * Starr

Posted by Ronald * Starr on June 16, 2001 at 23:37:19:

Dave T------------

I believe you are giving bad information here. A personal residence can not be exchanged for investment property in a tax-deferred or tax-free exchange.

As Rolfe pointed on in the earlier post, a personal residence can be sold with no federal capital gains tax due if certain conditions are met. If the conditions are met, there is no reason to do a tax-deferred exchange of a personal residence.

Good Investing and Good Advice-giving******Ron Starr*********

Re: No Tax up to $500,000 Gain - Posted by Ronald * Starr

Posted by Ronald * Starr on June 16, 2001 at 23:31:11:

Rolfe Kurtyka------------

“A tax deferred exchange is only allowable for use with income producing property.” This sentence is not true. The IRS section 1031 exchange can be used for three types of properties: those held for the production of income (your statement); those held as an investment–no income needed, could be vacant land held for appreciation; those held for business use. This last would be a property upon which or in which you conduct some money-making business. Thus, Wal-Mart could trade one of its old stores for some other real estate into which it would move a new store.

Good Investing**********Ron Starr********