Capital Gains Taxes & 1031 Exchanges

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My wife & I just sold our house on Long Island which greatly appreciated in the 30 years of ownership. We're buying another house in the area using the 1031 Exchange program. In our case, the new house ( Replacement Property) will be LESS than what we realized on the sale of our
( reliquished ) old house. I heard we may have to pay taxes on the difference, but are we
eligible for the $500,000 exemption ( for married couples filing jointly).

In most 1031 Exchanges, we have to buy a Replacement Property that is equal to or greater than the sale of the old house. In our case we need the
extra money ( $250,000 ) to pay off some old debts and credit cards

IE: cost of old house: $500,000 Sale of old house: $1,000,000
Cost of the new ( replacement property ) $750,000

Will we have to pay taxes on the $250,000 difference or does the $500,000
exemption avoid our having to pay taxes ?

We appreciate your expert opinion.

Ford Fernandez Email: [email protected]

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I won't give out tax advice dealing with personal situations. I will tell you what to consider and then steer you in the right direction:

1) Federal tax return
2) State tax return
3) Possibly city tax return

Federal, State & City returns can have different tax rules and due dates.

1031 Like-Kind Exchanges doesn't apply to a "personal residence".

You can start here to see what situation you are in:
Selling Your Home
http://www.irs.gov/publications/p523/index.html

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Yes, I definitely consult an account, and double check with the IRS.

My belief is that the sale of your home doesn't have anything to do with buying another, it's on the value of the home when you sell it as opposed to when you bought it. In general the exemption is $250,000 per person, $500,000 per couple, as far as gain.

One important point I learned, related to the original question....What to do when the spouse dies?

If the home is sold within a certain amount of time, the marital exemption holds.....if it has been longer than a certain time, the surviving spouse takes a % of the deceased spouse exemption.

Morbid as it may sound, you might want to investigate what this formula is exactly, as when I figured it under several scenarios, the surviving spouse is not left hanging in the wind, totally losing the exemption.

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Chai
Why would Ford Fernandez investigate anything to do with a deceased spouse? Also, the correct word is "exclusion" not "exemption".

The sale of a "personal residence" can get complicated depending on
the circumstances.

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TTH wrote:

Chai
Why would Ford Fernandez investigate anything to do with a deceased spouse? Also, the correct word is "exclusion" not "exemption".

The sale of a "personal residence" can get complicated depending on
the circumstances.

because, my dear, at some point in life, every married person who owns a home has a spouse that dies. This might come in handy to him, and others some day.

I did not know I was restricted to anwering only the question presented.

I'm so glad the TTH acceptable answer police are on high alert this morning.

please make sure to remind me when I forget myself again, and speak one word off the immediate subject.

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Chai
The reason I posted that is because the tax laws change. Reading what applies now most likely will not apply in the future. It would be a lot of
reading for nothing if the law changes.

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Capital Gains Taxes & 1031 Exchanges

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