Q: My wife and I have a slight dilemma. We have a vacant lot that has recently come under contract (contingent on a couple of things) and we stand to make a good deal of money over the initial investment. I understand a little about the 1031 exchange, identifying up to 3 potential candidate properties within 45 days and choosing 1 or more by 180 days, but I wanted to know something else. At the same time we are looking to buy a new primary residence and I wanted to know if there is any way to use the net proceeds from this land sale towards our new primary residence? Could we buy a lot that we would ultimately build on? Could we buy a house that is under construction? The capital gains on the property would be approximately $20,000, and I don’t really want to lose that kind of money.
Would it be better to look at a second home, kind of a vacation/getaway home or is there a way to use it towards a new primary home?
A: You can’t use the commercial property funds to buy personal property./ That will trigger the tax. You must make it a “like-kind” exchange, so investment property for investment property. Otherwise, you’ll take the tax hit.
Please consult with a real estate attorney who specializes in 1031 exchanges. If you blow one of the deadlines, or fail to meet the rules, you could owe big taxes.
Jan. 1, 2004.
(3 votes, average: 10.00 out of 5)
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