1031 Inquiry?????? NEED HELP!!!

[LeadingEdge]

here is the problem......

I have a friend who is selling his multi units in MA and wants to be able to avoid paying the huge taxes as he is also selling me the warehouse in SC.

He is trying to find a multi unit in SC with 10 or more units in one location. I was curious if he could get away with buying instead of a multi unit at 600K could he buy 10 units at 60K and still use the 1031 form to avoid as much tax being paid??????

If anyone has any good leads for a multi unit in that area as well I would be willing to set you up with him or trade a few leads for your contact of it.

Thanks

:SM080:

[wexeter]

It will depend on how the numbers work out in your specific situation, but from the details provided I would doubt that you would be deferring any of your capital gain or depreciation recapture taxes.

There are three requirements that you must meet in order to defer 100% of your capital gain and depreciation recapture taxes.

1) You must trade equal or up in value, so if you sell for $500K you must buy total replacement properties of equal or greater value ($500K plus) based on your net sales price.

2) You must reinvest 100% of your net cash proceeds (net equity). You can always pull cash out, BUT it will trigger all or a portion of your capital gain or depreciation recapture taxes.

3) You must replace the same amount of debt that was paid off from your relinquished property on the replacement properties that you acquire.

If you only acquire replacement properties valued at $60K I am guessing that you have not reinvested enough to defer any of your income tax liabilities.

[LeadingEdge]

Here is more specific details......

He has a house which he is selling for 400K now his mother is also selling hers at the same time. which will fetch close tothe same and i am buying his warehouse and 30 acres.... In total he shoud have about 1.2M after all done.

He wants to buy a home for him and his mother and then retire with the rest buying a multi unit or complex which pays cash for and the monthly income it rents for will be what they live on. He does not care if he pays market value for the property he is just concerned about paying more in taxes than he would have to if he did this.

I have been looking for a multi unit in Northern SC for him but have had no luck for him as of yet but it has only been a day.

[dealmaker]

Well I was all set to agree with wexeter when I re-read the original post. Should that be 10 units at $60K EACH. In which case I think he's OK. His mother's deal is a completely seperate issue.

Check with wexeter but make sure he understands EVERYTHING about the 1031 process BEFORE he signs ANY document. That includes a listing contract with an agent. Any misstep can screw the whole deal.

DM

[wexeter]

Good catch DM. I'm not sure if it is $60K per unit or in total. If he sells the mutli-family and the warehouse and the acreage for a total of $1.2 million he would have to replace the $1.2 million in value in order to defer 100% of his tax liability. He can always trade down in value and defer a portion of the income taxes. Another thought, if he has time to wait it out, would be to buy the multi-family property plus a SFR that he could rent out for 12 to 18 months or more in order to qualify for his 1031 exchange transaction and then after the rental period has lapsed move into it as his primary residence. This way he might be able to defer all of the income tax liabilities and end up with a nice SFR for his primary residence. There are a number of missing pieces in the details, so please feel free to call me if you would like to talk about the transaction via phone.