Managing Real Estate - a question
- Thread starter Offgrid Organic Farmer
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NYEXPAT
Thinks s/he gets paid by the post
How did your CPA value that and did your wife find out?
OP
OP
Offgrid Organic Farmer
Full time employment: Posting here.
I think they documented it and paid taxes as if rent had been paid all along.
My wife learned about them before I did. She actually arrived in the states a couple weeks before I did.
Winemaker
Thinks s/he gets paid by the post
The money you took out during refinancing is tax free; I have used the procedure twice. However, your taxes are based on the capital gain; the price you sold it minus the price you paid (The Basis), however depreciation lowers your Basis each year you own it. Yes, a 1031 exchange allows you to roll your depreciation adjusted basis over into the new property deferring the tax until later. The time is 180 days to complete the transaction, and not 3 years.
https://www.ipx1031.com/updates-and-impacts-for-2018/
https://www.ipx1031.com/updates-and-impacts-for-2018/
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NYEXPAT,
I thought the same thing, but I guess the apartment he's referring to isn't one he owned at the time.
I think you need a really good attorney and really good accountant. And most of all, you need to listen to them.
1033 Exchange:
1031 Exchange:
The initial $100K that you reinvested was actually a Capital Gain and not "income" as you call it. When you sold your first property, you should have paid capital gains tax on the $100K profit as well as tax on the recaptured depreciation that you had claimed while you owned the property. Instead of paying taxes, you waited 2 years to reinvest your Capital Gains into another property in a non-compliant '1033 Exchange'(?!).
In real life, your property would not begin to qualify for a 1033 Exchange anyway since it was not subject to casualty, theft or condemnation.
In real life, you would need to do a 1031 Exchange, which would have required you to reinvest the entire $200K sale proceeds into a new similar property of equal or higher value to qualify for the Capital Gains deferral. That would also have required you to identify the property you want to exchange within 45 days of the sale of the first property; and for you to complete the purchase within 180 days of the sale. Since you did none of these things, you are liable for the capital gains tax on the $100K profit and the tax on recaptured depreciation in the tax year the sale occurred.
Since you have done this 4X, you are potentially liable for four times the amount of taxes plus penalties - it could be a lot of money.
And regarding the $120K re-fi; if you used that $120K loan proceeds for yourself, then you should have been paying taxes each year on the loan payments that the property paid for you. It's income to you. (It's the same as if your business pays you a salary and you use it to pay the personal loan - you can't avoid the taxes either way.) This is another area of potential tax liability for you. OTOH, if you used the $120K for improving the property, then it would simply be a business expense. I'm sure there was a little of both each year, which is why you need a good accountant.
It seems like you're making up your own Tax Code as you go along. That's a recipe for disaster and you'd be well advised to seek professional help, and make an offer to the IRS to minimize your liability. FWIW, I would hire an accountant who used to work for the IRS if I knew I'd have to negotiate with them. I'm amazed the auditors didn't catch any of this. I've been told they're not always the sharpest tools in the box.
1033 Exchange:
1031 Exchange:
The initial $100K that you reinvested was actually a Capital Gain and not "income" as you call it. When you sold your first property, you should have paid capital gains tax on the $100K profit as well as tax on the recaptured depreciation that you had claimed while you owned the property. Instead of paying taxes, you waited 2 years to reinvest your Capital Gains into another property in a non-compliant '1033 Exchange'(?!).
In real life, your property would not begin to qualify for a 1033 Exchange anyway since it was not subject to casualty, theft or condemnation.
In real life, you would need to do a 1031 Exchange, which would have required you to reinvest the entire $200K sale proceeds into a new similar property of equal or higher value to qualify for the Capital Gains deferral. That would also have required you to identify the property you want to exchange within 45 days of the sale of the first property; and for you to complete the purchase within 180 days of the sale. Since you did none of these things, you are liable for the capital gains tax on the $100K profit and the tax on recaptured depreciation in the tax year the sale occurred.
Since you have done this 4X, you are potentially liable for four times the amount of taxes plus penalties - it could be a lot of money.
And regarding the $120K re-fi; if you used that $120K loan proceeds for yourself, then you should have been paying taxes each year on the loan payments that the property paid for you. It's income to you. (It's the same as if your business pays you a salary and you use it to pay the personal loan - you can't avoid the taxes either way.) This is another area of potential tax liability for you. OTOH, if you used the $120K for improving the property, then it would simply be a business expense. I'm sure there was a little of both each year, which is why you need a good accountant.
It seems like you're making up your own Tax Code as you go along. That's a recipe for disaster and you'd be well advised to seek professional help, and make an offer to the IRS to minimize your liability. FWIW, I would hire an accountant who used to work for the IRS if I knew I'd have to negotiate with them. I'm amazed the auditors didn't catch any of this. I've been told they're not always the sharpest tools in the box.
Last edited:
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
That has been a recurring theme in his posts over the past year or so... but it is all blessed by his CPAs and lawyers and I think the Pope too, so no worries.
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