Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 07-27-2012, 10:15 PM
Junior Member
 
Join Date: Jul 2012
Posts: 1
1031 California

Hello,

I am in California and we are selling our rental. We are using that to purchase another home out-right.

A tax guy out here indicated to me that we could move into the residence and convert our primary home to the rental to satisfy the 1031. Is that true?

Also, from a tax stand point would it be better to move into the new property and rent out our current residence for 2 years? How would that affect us?

Any guidance is appreciated.

Thanks



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 07-28-2012, 04:07 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
“I am in California and we are selling our rental. We are using that to purchase another home out-right.A tax guy out here indicated to me that we could move into the residence and convert our primary home to the rental to satisfy the 1031. Is that true?”----> you can rent out your new primary home prior to its sale and still qualify for the home-gain exclusion of $250,000 ($500,000 in the case of a married couple filing jointly). A lot of people choose to keep their home for a period after moving out because they may want to return or the real estate market might not be appropriate. The law states that as long as you have owned and used your former home as your main home for two of the last five years when it is sold you qualify for the exclusion. When your home is offered for rent and you have moved out, you can begin claiming depreciation deductions for the original cost of the property (or if lower, its fair market value). These depreciation deductions are claimed on Sch E where the property's income and deductions are reported. The depreciation deductions lower the cost of the property for determining gain later on at its sale. Additionally, the amount of depreciation claimed is income at the time of the sale that does not qualify for the exclusion. In effect, you are claiming deductions during the rental that later you will have to report as income. However, this is beneficial in most cases, since you get current deductions at your current tax rate and later will claim the amount as income subject to a maximum tax rate of 25 percent. The purpose of a 1031 exchange is to sell one piece of property and use proceeds to purchase another piece of property without having to pay capital gains tax on the sale of the first property. Section 1031 of the U.S. Tax Code authorizes these types of tax-free transactions. The rules in Section 1031 are strict and any mistake in applying the rules will result in capital gains tax on the sale of your property. UNLESSS your LTCG on the sale of primary home exceeds $500K as MFJ(OR UNLESS you keep the rental pty even in the future), 1031 exchange may not necessary for you;rental properties can be sold as part of a like-kind exchange to defer both capital gains and depreciation recapture taxes. In the interview for selling your primary residence as rental pty, you'll be asked if you ever rented the property and your answer would be yes. You will then simply be asked to enter the depreciation you took for the rental time or part. That amount of the gain will be subject to tax at 25%. The balance of the gain can qualify for exclusion
“Also, from a tax stand point would it be better to move into the new property and rent out our current residence for 2 years? How would that affect us?”---->As described above;



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
California SS Tax questions! Arky Social Security 2 07-12-2012 01:35 PM
California now requires a higher minimum amount of California installment payments due for 2010 TaxGuru California 0 01-29-2011 12:41 PM
To 1031 or not taxandtea920 Capital Gains 0 12-26-2009 08:07 PM
California State Tax Update on Withholding on Sale of California Real Estate! TaxGuru California 0 09-24-2008 10:11 AM
What are the IRS requirements for a 1031 exchange? Roberto Miscellaneous 1 01-06-2008 11:56 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning
 
 
 

» Recent Tax Q&A
No Threads to Display.