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.