Message Font: Serif | Sans-Serif
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 124158  
Subject: Re: Tax on 1031 exchange Date: 8/10/2009 12:47 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
If we move into the Texas home that was exchanged for the California rental home after several years, then it seems we would avoid both federal and ca tax except that part due to being a rental starting in 2009. Is that correct?

Roughly speaking, yes.

If you move into that house and live there for five years (rather than the usual two) you would qualify for the exclusion of up to $250k ($500k for a married couple) in gain on the sale.

But you would also have to deal with the non-qualified use issues for the rental period starting 1/1/09. That calculation is basically a proration of the gain. You'll take the number of months (or days) of non-qualified use (that would be the time from 1/1/09 until you move into the house) as the numerator. The denominator is the total time of ownership. Because the house was acquired in a 1031 exchange, you will add the ownership time from the previous houses to the ownership time of the current house.

Take that fraction and multiply times the gain. In this case, the gain will include the gains deferred from the MD and CA houses in the previous exchanges. That much of the gain is taxed in the year of sale. You'll also have to recapture the gain due to depreciation - which may be significant given your facts.

So there's no way the whole gain will escape tax. But a good chunk of it will.

I am not even going to ask if MD has a claim on any of the gain in the end!

I don't know MD law, but if I were to guess, I'd say that they probably do have a claim. I KNOW CA will want some tax because part of the gain is due to the property in CA.

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
Post of the Day:
Macro Economics

Looking at Oil and Gas
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.