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1031 exchange: is it the amount of the house or of the mortgage?
Posted on February 15th, 2011 2 comments
RNsmiles asked:
I asked my tax accountant about the 1031 exchange but I don’t feel confident that he really answered my question. We have a house that we accepted the bid for $443K we gave a credit of $13K for a net bid of $430. Our mortage is $250K.
The amount that was given to the accomodate is $153K.
Can we put in a bid for $410 and with all the fees both from escrow and to the agents end up having a mortgage of more than $250K. qualify for the 1031 exchange or do we need to bid $430K???? I understood from my accountant that as long as the mortgage is the same amount this is all the IRS cares about. Any advice?
Sandra2 responses to “1031 exchange: is it the amount of the house or of the mortgage?”
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Maybe some of this might clarify things a bit:
All the cash proceeds from the original sale must be reinvested in the replacement property – any cash proceeds that you retain will be taxable.
The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property.
So this talks about two things: (1) any cash that you retain from the transaction is taxable, and (2) the amount of the debt, i.e. mortgages, on the new property must be equal to or greater than the debt on the old property or the difference is taxable. The rules talk about the amount of the mortgages before and after, not the sale price.
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nyboi630 February 18th, 2011 at 01:04
it’s the amount of the house, not the mortgage. you’d pay taxes on the 20k if that 20k represented what the house value increased by.
check irs.gov and search for 1031 exchange.
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kokopelli February 16th, 2011 at 17:55