Two Properties Exchanged for One

FACTS–A very bright client of ours purchased two different properties a number of years ago.  These two properties were in a developing area of Miami-Dade County.  Additionally, both of these lots had neighboring properties that were raw acreage.  These two (2) properties are now within a few blocks of a major shopping center.  She transacts two (2) different Section 1031 exchanges.  One for the $2.8 million dollars to purchaser # 1 on lot # 1.  The other property is transacted for $2.1 million dollars to purchaser # 2 on Lot 2.  She has now done two (2) different Relinquished Property 1031 transactions.  Together she has sold properties totaling $4.9 million.  She used the proceeds from both of her sales (1031 transactions) to purchase one (1) Replacement Property for the sum of $4.7 million dollars.  She had to replace, if she did not want to pay any tax on her profits, properties totaling $4.9 million dollars.

LESSONS LEARNED—She did two (2) separate 1031 transactions and Liberty 1031, LLC, as her Qualified Intermediary, received approximately $4.9 million dollars into it’s Trust Account.  BUT, she only obtained $4.7 million dollars of Replacement Property.  For this example, let’s assume she had no costs on the sale and that she had originally paid $400,000.00 dollars for both of the Relinquished (sold) properties.  That means that on paper, she had a $4.5 million dollar total profit ($4.9 million less $400,000 = $4.5 million).  The taxpayer must purchase Replacement Property of equal value or more if they want to defer all of their profit.  In this case, she was $200,000 short on the purchase (Replacement) side of the 1031 transactions as she only purchased $4.7 Million worth of Replacement Property.  She will have to pay the long-term capital gains tax on the $200,000.00.  As these were undeveloped lots that she had owned, there was no depreciation recapture tax and as a result, there was nothing to depreciate.  The tax on $200,000.00 will be $40,000.00.  BUT, because she did her two Section 1031 Tax Deferred Exchanges, she has deferred $900,000.00 in taxes.  Pretty good result!! Also note, the Exchanger can combine two (2) or more exchanges and purchase one (1) Replacement Property, as long as all of the time-lines (45-day rule and 180-day rule) are complied with.

Privacy Settings
We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
Consent to display content from Youtube
Consent to display content from Vimeo
Google Maps
Consent to display content from Google
Consent to display content from Spotify
Sound Cloud
Consent to display content from Sound