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.