capital gains

[abbfan]

I am 1/3 owner of property that my father put in mine and my two siblings name back in 1998(about 8 years before he passed away).I understand that if I roll the money from the sale of the property back into real estate I won't have to pay capital gains.My question is how long do I have,and if I don't buy real estate will I have to pay the tax?

[AK-74me]

I am no expert and I am sure google can help you, but I think it is one year IIRC.

[designer300z]

It's called a 1031 exchange. What you do is when you sell the property, you have to make sure that the money from the sale is escrowed as part of a 1031 tax-exchange.

From the time of settlement, you will have 45 days to identify other potential properties that you want to roll the money into. Once those properties are identified, you will have 180 days to settle on them.

You have to be very careful with this process. If you identify a property and the deal falls through on it, you may end up blowing the chance at avoiding capital gains if that initial 45 day period has expired. Often times investors will identify multiple properties so that if a deal were to fall through, they would still have a property to roll the money into and not lose out to capital gains taxes.

[AK-74me]

Originally Posted by designer300z

It's called a 1031 exchange. What you do is when you sell the property, you have to make sure that the money from the sale is escrowed as part of a 1031 tax-exchange.

From the time of settlement, you will have 45 days to identify other potential properties that you want to roll the money into. Once those properties are identified, you will have 180 days to settle on them.

You have to be very careful with this process. If you identify a property and the deal falls through on it, you may end up blowing the chance at avoiding capital gains if that initial 45 day period has expired. Often times investors will identify multiple properties so that if a deal were to fall through, they would still have a property to roll the money into and not lose out to capital gains taxes.

Good to know, Thanks.

[crabcake]

I wonder if (assuming you own your current residence), you could refi it and put the money into that, or just simply write a check to your existing mortgage company toward the principal.

I'm not sure how the law is written -- if by "reinvest", that means you HAVE to buy another property, or can you just apply that money toward a residence you already own in some manner (e.g., put toward principal, use for home improvements, etc).

[Vince]

Originally Posted by abbfan

I am 1/3 owner of property that my father put in mine and my two siblings name back in 1998(about 8 years before he passed away).I understand that if I roll the money from the sale of the property back into real estate I won't have to pay capital gains.My question is how long do I have,and if I don't buy real estate will I have to pay the tax?

Talk to a CPA. If the property was gifted to you and your father lived in it until his death then he is considered a life tennant. You'll only pay capital gains on the value of the house at the time it was gifted to you until the time you sold it.

[designer300z]

Originally Posted by crabcake

I wonder if (assuming you own your current residence), you could refi it and put the money into that, or just simply write a check to your existing mortgage company toward the principal.

I'm not sure how the law is written -- if by "reinvest", that means you HAVE to buy another property, or can you just apply that money toward a residence you already own in some manner (e.g., put toward principal, use for home improvements, etc).

The capital gains would be assessed on the value increase from 1998 until now, not on the entire value of the home. It has nothing to do with how much is owed on a mortgage, so a refi to draw the equity would not enable you to avoid the capital gains taxes. a 1031 exchange itself is not considered an elimination of the tax, but rather a deferrment, because the capital investment funds are being transferred to another investment vehicle (i.e. another investment property). I agree with vince, you should have a chat with a CPA to determine what all your options are.