Downsizing with a 1031 (pay, million, taxes, rate)

[toad pad green]

In 2005 I did a 1031 exchange from an investment house I owned free and clear into an apartment building. I used the proceeds from the house (280K) and 450K cash as a down payment. I got a loan for ~2.3M. The purchase price was 3M. I am now selling for 3.55M. My proceeds of the sale will be 1.13M

I now want to exchange into a lower priced investment (600K to 1.2M).

1. Will I have to pay taxes.

2. Can I get mortgage relief and do a 1031 Exchange to a smaller property?

[Bob The Builder]

Originally Posted by toad pad green

In 2005 I did a 1031 exchange from an investment house I owned free and clear into an apartment building. I used the proceeds from the house (280K) and 450K cash as a down payment. I got a loan for ~2.3M. The purchase price was 3M. I am now selling for 3.55M. My proceeds of the sale will be 1.13M

I now want to exchange into a lower priced investment (600K to 1.2M).

1. Will I have to pay taxes.

2. Can I get mortgage relief and do a 1031 Exchange to a smaller property?

Toad

Unless you trade up, you pay taxes. I was in the same boat in Dec 2005. I was in 1031. I elected to NOT buy up and just paid the taxes. The market was looking ridiculously toppy. Cash is king

[toad pad green]

So if I want a smaller property the 1031 will not help me save money at all?

[Bill Keegan]

Originally Posted by toad pad green

So if I want a smaller property the 1031 will not help me save money at all?

The 1031 will still help you save money. You only pay taxes on the portion of the proceeds that you do not reinvest. So, if you sell your property for $3mil, and purchase a new one for $2.5mil, your tax is computed on the half million that you took out. The rest is still deferred.

[StealthRabbit]

Your sales price - (cost basis - depreciation) = gain

(as previously mentioned) in a 1031 you have to reinvest entire proceeds of sales price to avoid 'boot', of which you will be taxed on. You are not able to just reinvest the gain...(darn). You can still shelter some gains, as long as you exceed your cost basis.

I'm downsizing as well, but at the current >LOW< LTCG rates I have chosen to pay taxes on the previous 1031's I'm selling, .. until they raise the LTCG rate back to 28%++ (2011). I'm trying to complete all sales by the end of 2008, just in case the new leadership raises the LTCG rates.

I like to get 1031 info here
http://www.1031help.com/

they used to have a 1031 'university' at this site but was too much to maintain. All the info is still there, and I've used them for several exchanges.