Posted by Rich-CA on May 18, 2007 at 11:33:11:
This is correct. My in-laws, who are both tax attorneys, are doing just that. The rental period does not have to be extensive, sometimes just a month will do, just as long as it qualifies as an investment for the purposes of completing the 1031 exchange.
My thinking in this case was, if its just bare land, perhaps he could build on it, move in, and then take the exemption when he sells.
investment property - Posted by Howard
Posted by Howard on May 15, 2007 at 22:16:16:
I have held a piece of land for x# of years and paid x# of dollars for it. ? if it sold for a large gain of x# of $$'s how can I avoid paying any capital gains taxes. Can I payoff my current residence that is worth more than the investment property. Or do I have to buy another investment property in the 180 day period, Where can the funds from the sale be held until then?
Re: investment property - Posted by Rich-CA
Posted by Rich-CA on May 18, 2007 at 01:53:19:
Are there buildings on the land? Depreciable assets, as I found to my horror this year, are taxed at 25%, not 15%. Land does not depreciate, so its taxed at 15%.
If you use the proceeds for anything other than purchasing another investment property with at least the same debt load as the current property, then you can defer taxes, but you cannot eliminate them. One trick I have heard of people doing is to merge multiple properties into a single large property using a 1031 exchange, then move in and use it as their primary residence for 5 years. Then it qualifies for the $250K ($500k for married couples) tax free gain on sale of the principal residence.
Re: investment property - Posted by dealmaker
Posted by dealmaker on May 16, 2007 at 07:05:39:
Well since you’ve owned it for a number of YEARS it would be taxed as LONG TERM CAPITAL GAINS, 15% of your NET gain. You could do a 1031 exchange (research it very well BEFORE you sign any documents!) and put ALL OF THE PROCEEDS into other investment property. That way you POSTPONE the taxation on the gain.
When you study the 1031 process (should cost $500 or so to do it) you’ll see that the proceeds will be held by a qualified intermediary until disbursed to pay for the acquired property.
Any proceeds that inures to YOU will be taxed.
Re: investment property - Posted by Natalie-Va
Posted by Natalie-Va on May 18, 2007 at 08:09:30:
Hi Rich,
I’ve researched the tactic of converting your 1031 replacement property to your residence. You still need to rent it out initially. Also, the holding period must be 5 years, but you only have to live their for 2 years. At least that’s my understanding.
–Natalie