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What exactly is like-kind exchange?

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Money Talk > Real Estate

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ukrkoz
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What exactly is like-kind exchange?  Reply with quote  

Hi all

Here's situation.
We purchased a property, for primary residence, 2005, for $440K.
We started using that property, in 2005, as full rental.
Last year, we took $300K equity loan from rental property (it was paid for) as down payment to purchase 2 more rental properties.
We decided to sell that rental and have offer pending on it.
Offer is at $740K.
After all fees and taxes applicable, our disbursement will be $685K.
Out of which, far I know, escrow will pay off roughly $300K of that equity loan.
That, leaves us with $385K in proceeds.

Questions.
1. what exactly constitutes capital gain here? Difference between $685K and $440K? Is $300K paid towards equity loan reducing capital gain as, we do not, actually, receive $685K but, only $385K. Then how this stands against $440 paid for the property originally?

2. That in mind, if capital gain is $685K less $440K base= $245K, we will own 15% cap gain tax next year or, $36K. This makes us consider doing 1031 into yet another rental. Fine with us but. We'd like to buy $400K property then, to have it, pretty much, paid for by proceeds.
That brings me to a question I can't figure out. If we sold the property for $740K, netted $685K after all fees (less $300K loan paid back) - are we forced to buy $700Kplus property then? Or, say 2 $350K properties?

As, after fees and loan pay off, our REAlL proceeds will be only $385K, what is, actually, less than base.
Post Tue Jul 21, 2020 11:31 pm
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ukrkoz
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Cash: $ 10.65

Posts: 49
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Location: seattle
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I got it figured.
We will have to pay capital gain tax from proceeds less base cost amount plus, as property was rental, depreciation recapture.
Like kind exchange can be done only into another $740K property and we do not do that. So we'll be hit with tax next year.
Post Sat Jul 25, 2020 2:52 pm
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oldguy
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You have it almost correct - ie, capital gains tax plus depreciation recapture. But additionally, your $440k base is lower by the amount that you depreciated over the years.
Post Sun Jul 26, 2020 11:59 pm
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