Client wants to do a like kind exchange at the end of the year and get part of the money in 07 and rest in 08. Is there any advantage to doing this. I think there is going to be some profit on the sale - property purchased is less than property sold. Could you report a percentage in 07 and the rest in 08? Will the form allow this? Client is selling a rental house and land and buying investment land for replacement. How is the unrecaptured 1250 gain handled in this situation? If there is a profit, will it be the unrecapt 1250 gain? Any help out there? Thanks.
-
-
Is this being attempted via a qualified intermediary? -
JenMo
If your client gets cash it isn't a tax free exchange. The sale of the rental property must be done with a qualified facilitator.
No offense intended but this transaction is above your level of expertise.Comment
-
If you are, doing a legit 1031 exchange and exchanging down instead of up, you can do
An installment for the money you receive. The recognized gain from line 23 Form 8824 goes to line 16 and 18 Form 6252, on the dotted line write From Form 8824.
Then fill out part II with the money you received using 100%.(Or less then 100% see Pub. 537 page 7
Like-Kind Exchange)Last edited by Gene V; 11-08-2007, 10:43 PM.Comment
-
The UR 1250 gain is recognized first, then any additional gain limited to boot received. There is no deferral available for UR 1250 when exchanging into a non depreciable asset.Comment
-
Sorry I am late responding
The sale is going thru a qualified intermed. I thought I understood what I have been reading about 1031 exchanges that business ( rental ) property could be exchanged for investment property. Can that rental property be a house? You can exchange rental house for rental house and UR1250 gain goes along with it, correct? Would the basis in the new investment property have some UR1250 in it also.(since I'm trading rental for investment) If he trades down and has boot, it would be the UR1250 money, right? But if he stays in the days alotted for a 1031 exchange, could we run an installment sale so some money is reported in 07 and some in 08. I'm working with his lawyer on setting up this deal, and she's studying also, but there are no examples close to what we are doing.Comment
-
all things considered...
Yes, you can exchange a rental property for land and vice versa.
You can have an installment sale, but the note is considered boot - still you will only pay tax on the amount received in each year, under the normal installment rules.
Any gain recognized will be taxed using unrecaptured sec 1250 first. Any remaining sec 1250 gain will either become part of the basis in the new property or be tracked separately to be taxed when gain is recognized in the future - depending on how you elect to treat the basis in the new property.
If you use the rules based on Notice 2000-4 old basis/new basis rules, the nature of the sec 1250 gain will be preserved in the new property and thus no need to track it.
If you elect out of the old basis/new basis treatment, you will have to track the nature of the gain separately - (as you would also have to do if you exchanged from one state to another - assuming the state for the old property would wish to tax the original gain).
Using the old basis/new basis rules for properties that are as different as land and residential rental or even residential to commercial rental are, in my opinion, so convoluted that since the regulations came out in 2004(I did two exchanges following the regs precisely and swore, never again) I have always elected to treat all basis as new basis and track any unrecaptured sec 1250 gain, state tax gain and any other 'hidden' gain attributes separately on a worksheet of my devising.
One caveat - if it appears the client would receive a significant benefit using the new regs, then that certainly would be their option - but we'd make clear that the prep time might increase significantly.
The election out of 1.168(i)-6T is printed at the top of form 4562 when you set up the new property.
Hope that helps.Last edited by abby; 11-12-2007, 01:48 PM.Comment
-
Reg. 1.168(i)-6T is now permanent - no more T. See TD 9314.Comment
Comment