can someone give me info on like kind trade?

My mother has a house in menomonne falls wi, the tax value is $211,000. She wanted to trade the house for a investment propery here in Dallas. (she lives here). Any advise would be helpful.
Thanks
In Selling Property - Asked by kim p. - Jan 2, 2009
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Answer(s)

Jeff B.
Owner/Investor
Sundown, TX

Really, we would need to know more about the Menomonne Falls house. Is is investment property? Personal Residence? Rental Property or what.

Jan 2, 2009
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Jim C.
Owner/Investor
Appleton, WI

Contact a title company or attorney office or office that handles 1031 exchanges (also known as a Starker Exchange). Let them handle it for you so you don't mess it up. The fee is worth it especially if you have never done one before. The key is to get the menomonee falls house sold first, and once it looks like it will sell, identify a few properties in Dallas that she would like to trade into. I believe you have 45 days to identify that other property after the closing on the menomonee falls house, and then another 180 days to close on the second one, but double check the rules with whoever is going to handle your closing (the 1031 experts). Hope that helps.

Jan 7, 2009
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Timothy G.
Broker/Agent
Burlingame, CA

"like kind" simply means real property held for investment being traded for real property held for investment. This means that as long as the house has been treated as an investment property on the tax return then you may sell the property and complete an exchange for any teal property to be held for investment i.e. another house, apartment building, retail building, land etc... anywhere in the US. The rules to follow are specific and should be understood prior to starting the process.

Jan 14, 2009
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Paul S.
Broker/Agent
Glendora, CA

If the house in WI is an investment property (not her primary residence) she can sell it and buy any other type of real property. Like for like means an investment property not a type of property like a house for a house. She can even buy a piece of land that gets no income (income is not the measure of an investment). The only thing she can't buy and avoid tax is a primary residence. Most people do "delayed" exchanges which have specific rules and time frames. You must identify the replacement property within 45 days of closing the WI property and you must close the purchase within 180 days. You will also have to have the funds from the Wi. sale "held" by a neutral third party called an accommodater. You accountant or lawyer are not neutral and don't qualify as an accommodater. Any funds you have control over are subject to tax.
There are some limits on naming the replacement property but most people use the 3 property rule. The accommodater can explain the other replacement rules but I doubt they are going to apply to your situation? The cost of an accommodater is usually between $500-$800 which is a small price to pay to defer tax.
You mentioned tax value. The 1031 rules have nothing to do with tax value. The amount of gain will be based on the original purchase value (basis). Added to the basis are capital improvements (like a new roof or a room addition). The adjusted basis is subtracted from the net sale proceeds and that is the amount of gain you are deferring.
Your upleg property will need to have a value that is equal or greater in value to the property you sold. If you net 250K in Wi. you will need to purchase for at least 250K elsewhere. If there is a loan on the Wi. property the new property will need to have the same loan amount or the IRS considers that debt relief or boot. The gain from the Wi. property will reduce your basis on the new property by that amount. If you buy and sell at the same price you will not get any new depreciation because the adjusted basis on the new property will be the same as the old property. To get depreciation you need to go up in price i.e. sell for 250K buy for 500K. If you have been depreciating the Wi. property and you don't do an exchange you will have to recapture the depreciation you have taken at a 25% recapture rate. An exchange will avoid that tax as well.
Verify everything with your tax professional but be sure that person understands exchanges. Not all CPA's do.

Feb 5, 2009
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