Like kind exchange ???

[hjstaxstop@charter.net]

I agree on the tax season scenario. Help me get through this one. My client bought the family home about 6 years ago where his father lived until his passing. The client then, after renovating, sold the house, subdivided the land into small parcels, and sold them to various adjoining neighbors. At the same time purchased an adjoining lot to his residence from yet another party and install an a vinyl fence around the property. Nine closing statements in all.
Can a like kind exchange be used to offset some of the gain? Is there any way the fence can to added to the cost of the lot? We have serious tax liability here and I have limited experience in the area. Any other strategies available ( now that the cow is already out of the barn) ?? Anything, anybody?? Thanks

[Bucky]

Was the house where father lived considered a life estate. If so have you figured in step up of basis on the sale of small lots?

[thomtax]

No expert

I'm not an expert on 1031 exchanges, but I think that a few things have to happen for this to work.
1. You need someone that is set up for handling this type of exchange to handle the sales, etc.
2. The property to be received must be identified within 45 days after the property given up in the exchange is transferred.
3. The property must be ceceived by the earlier of:
180 days after the transfer of the property given up in the exchange.
The due date, including extensions, for the tax return for the tax year in which the transfer of the property given up occurs.

There is a discussion on pages 6-16&17 of TTB deluxe.

Someone with more experience hopefully will come along with further explanation.

LT

[Lion]

No money

There can be no money in his hands during the process, keep in escrow. Although using a qualified intermediary is not a requirement, it's probably the best way for this guy who's never done this before. However, if some of the funds and deeds have already changed hands, it's probably too late. He needed to map it out before hand to fit it to the requirements, or his QI needed to. If he already sold using usual procedures, it can't now be an exchange.

[Lion]

Like Kind

And, read up on what can be like kind to what. Obviously, no personal use property can be involved. But, is investment real estate like kind to rental RE? It would be a real fluke if his situation just happened to fit the regulations without any pre-planning on his part.

[Mo Sheets]

Publication 523

From Publication 523...this MIGHT help....

Vacant land. The sale of vacant land is not a sale of your main home unless:
The vacant land is adjacent to land containing your home,

You owned and used the vacant land as part of your main home,

The separate sale of your home satisfies the requirements for exclusion and occurs within 2 years before or 2 years after the date of the sale of the vacant land, and

The other requirements for excluding gain from the sale of a main home have been satisfied with respect to the vacant land.

If these requirements are met, the sale of the home and the sale of the vacant land are treated as one sale and only one maximum exclusion can be applied to any gain. See Excluding the Gain , later.

Good luck!

Mo

[Burke]

I agree on the tax season scenario. Help me get through this one. My client bought the family home about 6 years ago where his father lived until his passing. The client then, after renovating, sold the house, subdivided the land into small parcels, and sold them to various adjoining neighbors. At the same time purchased an adjoining lot to his residence from yet another party and install an a vinyl fence around the property. Nine closing statements in all.
Can a like kind exchange be used to offset some of the gain? Is there any way the fence can to added to the cost of the lot? We have serious tax liability here and I have limited experience in the area. Any other strategies available ( now that the cow is already out of the barn) ?? Anything, anybody?? Thanks

Unless your client lived in this home, it is not considered under the sale of personal residence rules. And he can forget the like-kind exchange AFTER the fact. This all had to be structured before the sale.

[hjstaxstop@charter.net]

Thanks,Team, for the input. What about this stepped up basis? How does this work? Can the taxpayer take the FMV of the property at the time of the father's death instead of his purchase price six years ago, if the father had a life estate? Seems like a giant loop hole or
am I still looking out of my rose colored glasses. Just give it to me plain and simple. Thanks alot. Harold

[thomtax]

Harold - Was there a deed that changed ownership from the father to the son and then a life estate given to the father at the time?

LT

[Burke]

Thanks,Team, for the input. What about this stepped up basis? How does this work? Can the taxpayer take the FMV of the property at the time of the father's death instead of his purchase price six years ago, if the father had a life estate? Seems like a giant loop hole or
am I still looking out of my rose colored glasses. Just give it to me plain and simple. Thanks alot. Harold

Now you have schlepped into a gray area. If it was written in the deed that the father had a life estate, then you may be okay. If it was not, and it generally isn't, you have to read up on "implied life estates." They have held up in some courts. However, these are generally in play when a house is gifted to a family member, when it is simply signed over for one reason or another. When that happens, it may be considered an incomplete gift. In this case, it was sold according to your OP. So, I cannot see how he can claim stepped-up basis.