Presentation on theme: "Like Kind Exchanges: IRC Sec 1031 Sale of real estate Typically substantial amount of gain Sec 1250: income to extent of accumulated depreciation taxed."— Presentation transcript:
Like Kind Exchanges: IRC Sec 1031 Sale of real estate Typically substantial amount of gain Sec 1250: income to extent of accumulated depreciation taxed at 25% All in one year unless installment sale So use 1031 exchange, rather sale Increase in capital gains rate in future?
Like Kind Exchanges: IRC Sec 1031 Qualifying property Property held for investment or use in business Real estate Vehicles Farm equipment Nonqualifying property Inventory Stocks and securities
Like Kind Exchanges: IRC Sec 1031 Like-Kind property Real estate in U.S. for other property in U.S. Farm for office building Apartment building for shopping center Tenants in common trades Personal property Must be same asset class Trade combine when purchasing new combine Can’t trade combine for computer
Like Kind Exchanges: IRC Sec 1031 If no boot (cash, relief of debt received), no gain recognized although gain is realized If receive boot, gain recognized to extent of lesser of gain realized or boot received Basis in property received Basis in old property + Cash paid + Gain recognized - Cash received
Like Kind Exchanges: IRC Sec 1031 Like-Kind property Sally: Farm: FMV $500,000, basis $100,000 Fred: Office Building: FMV $600,000, basis $300,000 Sally and Fred trade property and Sally pays Fred $100,000 Sally: $400,000 gain realized, 0 gain recognized, $200,000 basis in farm Fred: $300,000 gain realized, $100,000 gain recognized, $300,000 basis in farm
Like Kind Exchanges: IRC Sec 1031 Related parties Property received must be held for at least two years Non-recognition treatment is mandatory if qualify Assets with a loss
Like Kind Exchanges: IRC Sec 1031 Forward exchanges: very typical Sell property now, buy replacement later Hot money! Must identify replacement property within 45 days Maximum of three properties or Properties with FMV of 200% of property sold Replacement property purchased within earlier of 180 days or due date of tax return Qualified Intermediary must hold funds Often bank: seller can’t have access to funds Reverse exchanges: buy replacement then sell property, not as common
Sale or Exchange of Assets No gain recognized until sale of asset Deferring gain Specific identification of high basis shares Multiple lots, not selling entire position Prior to sale identify Then receive confirmation If can’t specifically identify, then FIFO Generally larger gain
Sale or Exchange of Assets Average cost Provided by brokerage firms and mutual funds companies Single category method used Total basis/Total shares = basis per share Specific identification for mutual funds?
Sale or Exchange of Assets Calls Buying calls Expire worthless Short-term capital loss Exercise call Adds to basis of shares Selling calls (covered calls) Not exercised Short-term capital gain Exercised Short-term capital gain Underlying stock may be long-term
Sale or Exchange of Assets Puts Buying puts Expire worthless Short-term capital loss Exercise put Short-term capital gain Underlying stock may be long-term Selling puts Not exercised Short-term capital gain Exercised Decreases basis in stock acquired
Sale or Exchange of Assets Collars Concentrated position Buy put Sell call to offset cost of buying put Constructive sale if spread between put and call strike price is small 20% spread from current price and strike price
Sale or Exchange of Assets Installment sales Farm: FMV of $500,000; basis $100,000 Sale on installment contract 10 principal payment + 6% interest Each year have $40,000 capital gain, interest and $10,000 return of basis (not taxable) Wash sales Sell stock at a loss Can’t buy “substantially identical” securities 30 days before until 30 days after sale Intel vs. AMD S&P 500 index funds Sell in taxable account, buy in IRA
Sale of Personal Residence Live in home two of last five years Exceptions. Partial exclusion if: Sell for health reasons Move for job MFJ may exclude up to $500,000