Author Topic: Needs tips on 1031 exchange where buy price is slightly less than sale price  (Read 960 times)

Milspecstache

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I'm considering a 1031 exchange:

Rental to sell with Zestimate at $155k, held since 2003, rented since 2005

Want to buy timberland.  Seller wants $140k for 70 acres.  Plan is to harvest the timber and build my retirement home on it while renting our current home.  Currently working a timber estimate.

I'm sure this has been done before.  I don't desire to pay depreciation recapture on the $15k difference.  Thanks in advance for your help.  I will be using a lawyer but hate to sound ignorant at our first meeting...  Always better to show up with a plan!

ketchup

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Zestimate is garbage.  I'd get a real feel of the value first before making any assumptions or plans.  Talk to a realtor or pull some comps yourself.

Milspecstache

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After buying 4 different homes, and renting 3 others I find Zillow to be an awesome resource!  Even more so given the fact that it is free and takes seconds to pull a value from.

However, as you requested, I ran 3 comps on properties that sold within 5 miles and pulled a value of $167k.

Jim2001

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I'm considering a 1031 exchange:

Rental to sell with Zestimate at $155k, held since 2003, rented since 2005

Want to buy timberland.  Seller wants $140k for 70 acres.  Plan is to harvest the timber and build my retirement home on it while renting our current home.  Currently working a timber estimate.

I'm sure this has been done before.  I don't desire to pay depreciation recapture on the $15k difference.  Thanks in advance for your help.  I will be using a lawyer but hate to sound ignorant at our first meeting...  Always better to show up with a plan!


In simple terms, with a 1031 exchange, you need to replace both the debt and equity at higher values than the relinquished property. Without that, you will have a tax bill. 

I did a 1031 exchange in 2016 and thought I'd met the criteria because I'd used all the cash that came out, plus replaced all of the debt.  Unfortunately, my tax guy found that some of the fees during the sale counted as boot and I had a sizable tax bill.

Consult an expert prior to selling the current property.  There are very specific rules about not taking constructive receipt of the proceeds and the timeline to purchase the replacement property.
Cheers!

Jim

Blindsquirrel

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 Would definitely do 1031, you do not want 11 years of depreciation added to your gain. 11x2.7% on top of your gain as taxable, no thank you. In this case, it is not what you make but what you keep that matter.
Even a blind squirrel finds a nut once in awhile.

ketchup

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After buying 4 different homes, and renting 3 others I find Zillow to be an awesome resource!  Even more so given the fact that it is free and takes seconds to pull a value from.

However, as you requested, I ran 3 comps on properties that sold within 5 miles and pulled a value of $167k.
Zillow can be great for searching for properties and pulling comps etc. It's the "Zestimate" specifically that tends to be hilariously wrong.  It claims a rental property I have is worth $122k, and it's truly worth $30k on a good day.  I just wanted to make sure you're not taking that number as gospel.  It's an automatically generated number that intrinsically means very little.  I'd be pretty screwed if I made plans assuming that rental property was worth $90k more than it actually is.

jwright

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What is your cost basis in the home you are selling? 

You need to know what your realized gain was before you calculate how much you will be able to defer through an exchange.