1031

Practical and Practice issues for Professionals who practice in the area of taxation. Moral, social and economic issues relating to taxes, including international issues, the U.S. Internal Revenue Code, state tax issues, etc. Not for "tax protestor" issues, which should be posted in the "tax protestor" forum above. The advice or opinion given herein should not be relied on for any purpose whatsoever. Also examines cookie-cutter deals that have no economic substance but exist only to generate losses, as marketed by everybody from solo practitioner tax lawyers to the major accounting firms.
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Cathulhu
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Re: 1031

Postby Cathulhu » Mon Aug 27, 2012 2:08 am

Fuzzie, this was one of my areas of some expertise; I've waded through the 60 odd pages of regulations under code section 1031. First, a sale and repurchase will not qualify unless you go through a facilitator and/or have sale proceeds held in an escrow account. If you get access to the money yourself, you've shot yourself in the foot.

You'll find some basic info in IRS publication 544; in general real estate for real estate can qualify, but personal residences do not, and have different (but quite advantageous rules). You'll have to separate your house from your farmland, and for the land you trade for your farm to qualify, you'll need to get income-producing property. Assuming that you live on your farm, you'll have to allocate as if it's two sales; one a personal residence where you can exclude a substantial amount of gain ($250K for single, $500K for married filing jointly) and the rest as a sale or 1031 exchange of farmland. F.8824 is used to report it and the pages of instructions have a lot of free info.

Simply put, go to the yellow pages, find something under either "tax-free exchange" or "Starker exchange facilitator" and start shopping for someone who seems to know their stuff. But read the timing requirements in Pub. 544 first. The clock starts ticking when you give up title to the farm, and you have to identify the property to be received within 45 days. You have to complete the entire transaction with 180 days of when you gave up the first property, or the due date for your return for the year you gave up the property (but you can use an extension), whichever comes first.
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Re: 1031

Postby Prof » Mon Aug 27, 2012 1:12 pm

Also, be very careful where you "park" the money; about four years ago, the largest 1031 facilitator filed bankruptcy; the owner had been speculating with the "escrowed" funds.
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Re: 1031

Postby Cathulhu » Tue Aug 28, 2012 4:04 pm

Fuzzie, then you can't do a like kind exchange. It's business property for other business property; and your personal residence is not a business property. And according to what you posted here, you already have something to fear from an audit.
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Re: 1031

Postby Burnaby49 » Tue Aug 28, 2012 5:29 pm

This points out a BIG difference between Canadian and US tax law. In Canada the sale of personal residences is tax free. A huge plus here in Vancouver where I bought my house for about $70,000 over 35 years ago and it is now worth close to a million. The downside, if you want to call it that, is that mortgage interest, and any other personal interest such as credit cards, is not tax deductable. I actually agree with that. In my opinion the American interest deductibility is a negative. It encourages people to over-purchase on houses, both in size and cost. People tend to buy to the limit of what they can afford and a huge tax deduction allows them to just borrow more rather than helping pay the mortgage. Since house costs are a supply/demand issue the interest deduction just helps drive up prices.
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Re: 1031

Postby Famspear » Tue Aug 28, 2012 11:34 pm

Burnaby49 wrote:This points out a BIG difference between Canadian and US tax law. In Canada the sale of personal residences is tax free. A huge plus here in Vancouver where I bought my house for about $70,000 over 35 years ago and it is now worth close to a million....


Even over a 35 year period, that is an astonishing increase in value. That would be pretty rare in most places in the USA.

Subject to various rules, in the USA, the first $250,000 of gain on the sale of a principal residence is tax free ($500,000 of gain on a "married filing jointly" return). This rule generally applies where the residence was used as the principal residence for periods aggregating two or more years during the five year period prior to (and ending on) the date of the sale. So, in the vast majority of cases, sale of a principal residence in the USA is also tax free.

The downside, if you want to call it that, is that mortgage interest, and any other personal interest such as credit cards, is not tax deductable. I actually agree with that. In my opinion the American interest deductibility is a negative. It encourages people to over-purchase on houses, both in size and cost.....


That may be true of some relatively sophisticated purchasers. However, many people who buy a home simply don't take the home mortgage interest expense deduction (and the resulting tax savings) into account when buying a home.
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Re: 1031

Postby Burnaby49 » Wed Aug 29, 2012 12:00 am

Even over a 35 year period, that is an astonishing increase in value. That would be pretty rare in most places in the USA.

Welcome to the wild world of Vancouver real estate. A friend of mine bought a house on the west side of Vancouver at about the same time as I did for about $10,000 more than mine. A crazy $80,000 purchase because his wife liked the area. It is now worth about $1,500,000. His house, like mine, is assessed at next to no value. It's all in the lot.

A number of reasons;

1 - Very little available land in the city or surrounding area. Vancouver is a sliver of land sandwiched between mountains on the north, the US border on the south, and the ocean to the west.

2 - Huge real estate demand from Chinese money. The mainland Chinese have moved into Vancouver real estate big-time as a safe harbour to park their money if they ever have to bail. Vancouver is very popular with the Chinese because of it's very temperate climate and access to the Pacific region. Almost 20% of greater Vancouver's population is Chinese and that is growing. Vancouver was actually a pretty sleepy small-time city until the 1970's then things seemed to explode on the immigration, business activity, and real estate market fronts.

3 - General desirability. Vancouver is a beautiful city. I have a panoramic view of a mountain range out my front window but I'm right in the urban Vancouver area and can be downtown in 40 minutes by public transportation. Match that to the warmest, most temperate climate in Canada and you have an magnet for immigrants and retirees. I got in on the ground floor by luck, I was born here.
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Burnaby49
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Re: 1031

Postby Burnaby49 » Wed Aug 29, 2012 12:09 am

Subject to various rules, in the USA, the first $250,000 of gain on the sale of a principal residence is tax free ($500,000 of gain on a "married filing jointly" return). This rule generally applies where the residence was used as the principal residence for periods aggregating two or more years during the five year period prior to (and ending on) the date of the sale. So, in the vast majority of cases, sale of a principal residence in the USA is also tax free.

Didn't know that. I've always been under the impression that all personal residence gains in the states are taxable. While I'm pretty knowledgeable about Canadian tax (35 years in the business) I don't know much about specific US tax law. While I read all the Quatloos tax-related threads much of it is a mystery to me because of the rules and procedures.
"Yes Burnaby49, I do in fact believe all process servers are peace officers. I've good reason to believe so." Robert Menard in his May 28, 2015 video "Process Servers".

https://www.youtube.com/watch?v=XeI-J2PhdGs


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