QUESTION
How does a mortgage affect a like in kind transaction?
Asked on Jan 25th, 2013 on Real Estate - Tennessee
More details to this question:
I've got a rental property in NM that I would like to sell and use as much of the proceeds as required to avoid paying capital gains tax to purchase a new rental property in TN where I now reside. I expect I can sell the NM house for X dollars and I owe about X/2 still on the mortgage. When I purchase a new property in TN do I have to spend X dollars or only the amount I will actually have left after I pay off the mortgage? Any help will be greatly appreciated.
1 ANSWER
To avoid any capital gain with a 1031 exchange you must be exchanging like properties that have been held for rental income. The IRS has a very broad description for like properties so usually any property will qualify. The amount you need to reinvest is the difference between the price you aquired the property and the price you sell it. The loan balance is not a factor. You can mark up you basis by adding any improvements.
Answered on Jan 26th, 2013 at 10:16 AM