Questions about 1031 Tax Free Exchanges..... - Posted by Charity

Posted by David Krulac on December 04, 2000 at 20:57:56:

unfortunately 1031 does NOT apply to personal residence, only non dealer investment property.
However, the $250,000 tax exception for the personal residence in many cases is much better and easier to do.

Questions about 1031 Tax Free Exchanges… - Posted by Charity

Posted by Charity on December 04, 2000 at 20:49:02:

I have no clue about how these things work at all. I am selling my personal home and had a very interesting call from a man who wants to downsize and built his own property. It would be a great home to have and he is interested in trading. How does this work if I have a mortgage on my home and he has one too? What if he doesn’t have a mortgage? I guess I don’t understand what becomes of the mtg payments on each after the exchange. Can someone give me a rundown on the process?


Re: Questions about 1031 Tax Free Exchanges… - Posted by dewCO

Posted by dewCO on December 04, 2000 at 23:29:21:

Are you exchanging houses? Or are you selling to the investor and moving somewhere else. If you are doing the later, it’s just like any other purchase and sale as far as you are concerned. If you’ve made it your personal residence for 2 of the last 5 years, then you have no tax consequence up to $250k for a single person, $500k for a couple.

One can only do a 1033 DEFERRED Exchange on an investment property. So he can buy yours (he pays off the mortgage and gets a new one if necessary just like any other purchase and sale) and makes it his replacement investment property. You close just like any other deal, take your money and go down the road. Or, I guess you could buy his for your residence, or as an investment property.

At any rate, HE does the Exchange, you, as the seller, aren’t really involved other than to sign a form at closing that you knew it was a 1033 exchange.

Re: Questions about 1031 Tax Free Exchanges… - Posted by Dave T

Posted by Dave T on December 04, 2000 at 22:55:23:

For most of us, the sale of our personal residence is already a TAX FREE transaction, subject to the $250K ($500K MFJ) capital gains exclusion. Usually there is no need to look for complicated tax avoidance strategies when selling your personal residence.

As David Krulac pointed out below, 1031 tax treatment does not apply to your personal residence. I would like to clarify, however, that a 1031 exchange is not tax free. I know that “tax free exchange” is a popular term for a 1031 like-kind exchange, but taxes on an exchange are only DEFERRED – not eliminated.

In your situation, let’s assume that your potential buyer is really interested in buying your home if you would be interested in buying his. In this context, you will be TRADING up, he will be trading down. You each get new mortgages to finance your respective legs of the transaction. I don’t believe that the use of the term TRADE should be construed to mean a 1031 transaction. Now, I could be wrong here because I am not able to ask the other party in this deal just what is meant by the term TRADE.