1031 Exchange

[Nazzy_17]

Hi There,

I want to know if a 1031 Exchange is my best option to minimize paying taxes on appreciated property. The property is in Boston, purchased for around $300K in 1999 and is valued at around $670K-so an appreciation of around $350K (less expenses on sale). It is currently rented out. But the idea is to maybe sell it and roll it into a down payment on a rental here near the water that we would rent out for about 7 years and then move into it. Could we do that with the 1031 exchange or does it have to remain rented for the duration that we own it? Is the taxes that I would otherwise pay 15% of appreciation ($45K) or are there other factors, if I did a straight sale, no 1031 exchange?
Thank you!

[HLS]

First off, if you have been depreciating the Boston property for income tax purposes, your adjusted cost basis is considerably less than $300K. Has it been a rental since 1999 ?
IF YOU SELL; Your federal taxable profit will be the difference (Based on the adjusted cost) possibly 15% long term gains but you will probably owe the Commonwealth of MA income tax also, and may owe CA some too….

A 1031 exchange is possible to defer your tax liability but somewhat complicated if you have never done one.
You will need an accommodator and you cannot ever have control of the funds. They must go from escrow to the accommodator, never through your control.
You probably will need to have at least as much debt on the new property as you currently have in MA.
You will have an adjusted cost basis on the new property and once you move into it and it is no longer a rental you will probably incur tax liability, state and federal.
1031 rules are tough. Talk to an experienced tax advisor who is familiar with 1031 exchanges.
One mistake can cost you the entire tax liability rather than deferring it.

[SK in CV]

The property (or properties) has/have to be rented (or available for rent) for 2 years immediately following acquisition. If that occurs, all taxable gain is deferred until the new property is disposed of.

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