Like-Kind Exchange incl personal property

[KJ Judd]

Help! First one of these I've done. Client held property for investment, no mortgage. Did Sec. 1031 exchange through qualified intermediary. On closing statement, client paid $200,000 for personal property (I'm guessing this is furnishings, but don't have a detailed list).

Here are the facts:
Property given up - basis $562,381 (no mortgage, no depreciation)

Paid deposit of $150,000
New mortgage of $1,250,000
Also received the $200,000 of personal property mentioned above
FMV of new property $2,325,000 (Total consideration on line 101)

Finally there's $119,000 of loan proceeds held back listed as an "other charge" on line 105. No clue what this is about.

Lacerte is showing adjusted basis of property given up of $1,962,381 and deferred gain of $362,619. This is without doing anything with the $200k personal property because I was stumped.

Am I on the right track? And how do you handle personal property?

[Jan]

Haven't had time to look into this, but wouldn't personal property be unlike property in your exchange work sheet?

[jainen]

>>Am I on the right track?<<

No, you aren't. You are asking too many questions and tracking too many numbers. However, you are leaving out one useful number, the FMV of the relinquished property. It seems that number is $1,125,000, since he got 2,325,000 real estate plus 200,000 personal property for 150,000 cash, 1,250,000 mortgage, and the old property. Therefore, the new money he put in for the real estate was 1,200,000. That plus his old basis gives a new basis 1,762,381 for the real estate, and $200,000 for the personal property.

Never pay ANY attention whatsoever to mortgages in a 1031 exchange. They only apply if the buyer assumes one, and that never happens (okay, only very extremely rarely, and never in anything except commercial real estate) because the banks always require a new loan based on the credit of the new owner.

I probably have these numbers wrong. Work them out for yourself on paper first, then put them into Lacerte. There is no other way to get it right.



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