1031 Exchange

[Sage]

Does 1031 incur a higher taxable gain when the 1031 property is eventually sold?

A very simple example - 

Cost: $250k (assuming no adj to basis) 

Sold: $330k

Gain = $80k (deferred) 

Cost of exchanged property: $410k

Basis of the like kind property received: $250K

 

If the exchanged property sold for $500k 

Taxable Capital Gain - 

No like kind exchange: 

1st property: 330k - 250k = $80K

2nd property: $500k - 410K = $90K

Total: 160K 

Like kind exchange:

Gain = 500k - 250k = $250k

Please advise if I m missing a step or information. Thank you!

 

 

 

 

[kathyc2]

Basis of new property is 330 (410 - 80), not 250.

[Sage]

1 minute ago, kathyc2 said:

Basis of new property is 330 (410 - 80), not 250.

I see. Thank you!!!!!!! 

[Sage]

21 minutes ago, kathyc2 said:

Basis of new property is 330 (410 - 80), not 250.

Would that be the number showing on line 25 of 8824? 

[DANRVAN]

1 hour ago, Sage said:

Does 1031 incur a higher taxable gain when the 1031 property is eventually sold?

No, the gain from the first property is deferred to the sale of the second property.

The total gain is the same, but there a possibility that the combined gain on the second sale could push the taxpayer into a higher tax bracket.

 

[kathyc2]

2 hours ago, Sage said:

Would that be the number showing on line 25 of 8824? 

Yes.  Remember you need to add the additional cash given of 80 (410 - 330) to the basis of old property on line 18.

Line 16 & 17 410,000

Line 18         330,000

Lines 19 & 24  80,000

Line 25         330,000

[Sage]

12 hours ago, kathyc2 said:

Yes.  Remember you need to add the additional cash given of 80 (410 - 330) to the basis of old property on line 18.

Line 16 & 17 410,000

Line 18         330,000

Lines 19 & 24  80,000

Line 25         330,000

How about if mortgage is involve. Mortgage with old property and mortgage with new property. Should the be included on any of the line? 

15 hours ago, DANRVAN said:

No, the gain from the first property is deferred to the sale of the second property.

The total gain is the same, but there a possibility that the combined gain on the second sale could push the taxpayer into a higher tax bracket.

 

Thank you for the clarification! 
 

Appreciate everyone taking your time to answer my questions! 

[kathyc2]

1 hour ago, Sage said:

How about if mortgage is involve. Mortgage with old property and mortgage with new property. Should the be included on any of the line? 

Yes.  Read the instructions for 8824 and follow the examples they lay out.  Be aware that may cause only a portion of the gain to be deferred and a portion to be included in current income.