"Arthur L. Rubin" <ronnirubin[at]sprintmail.com> wrote:
- quote -

I live in Florida and the new exchange property would be in
Florida. You are saying that I must remit taxes to
California when I sell the FL property, let's say 5 years
from now? How is California going to know anything about the
transaction if I am a Florida state resident? Does anyone
know whether Mr. Rubin is correct?

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Florida wrote:
- quote -

I don't think so -- I haven't studied CA rules on 1031
exchanges, but it was clear on CA rules on homeowner
deferrals (pre-1997), that the latter sale would be taxable
in CA.

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

Thanks for pointing out those items. I would have missed
them. I guess it's really not enough to just have an
intermediary be part of the transaction since their only
responsibility it to take possession of the proceeds at
closing. Someone skilled in the tax consequences of all the
items included on the HUD-1 should probably review the
paperwork before closing to ensure none of the "wrong"
things are paid from proceeds.

When are these taxable items typically found? During an IRS
or state audit?

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"Bob Oaks" <bobinsfoNOSPAM[at]yahoo.com> wrote:
- quote -

I don't think the test for whether the expense is 1031
qualified (i.e. can be paid from proceeds) is whether it is
paid out of escrow as MTW's response points out. Qualified
expenses are qualified expenses and taxable expenses are
taxable expenses no matter whether they are paid at the
close of escrow or not. Just getting it onto the HUD-1
doesn't change the nature of an expense. The only strategy I
can see is having any repairs negotiated into a reduced
selling price. It seems like the buyer would have to pay the
contractor with the money "saved" from a reduced selling
price. Hopefully, I (and my real estate agent from hell)
have set the price where the property will be accepted on an
"as-is" basis.

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"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote:
- quote -

There will be a true savings if the property is ultimately
sold in a state that has no state income tax. The property
for sale in California and the "new" property will most
likely be in Florida which has no state income tax.

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"Florida" <lelliot3nospam[at]earthlink.net> wrote:

- quote -

Worse still, there really was more "postponing" than "saving".

-HW "Skip" Weldon
Columbia, SC

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"Florida" <lelliot3nospam[at]earthlink.net> wrote:
- quote -

What if the work is done before the "sale" but the
contractor is paid out of escrow? Would that be OK if the
work were required as a condition of the sale? I had a
somewhat similar experience a couple of years ago when we
needed some work done on the acquired house. We got a
contactor to bid on it, and then he was paid out of escrow,
which in effect allowed us to take out a larger loan to pay
for the work. You need a trustworthy contractor to do this
kind of thing.

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Florida wrote:

- quote -

A colleague of mine who is frequently involved with 1031
transactions tells me that most end up being at least
PARTIALLY taxable because of various non-selling costs (such
as tax or interest prorations) paid out of the proceeds.
You're right - this is a "trap" that isn't readily apparent.

MTW

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"John H. Fisher" <taxservice[at]aol.compliance> wrote:
- quote -

Don't worry. I will have an intermediary and it will be
money WELL spent but I wanted to confirm my thoughts about
where money for selling expenses would come from (proceeds
or my pocket).

I'm finding out it can be expensive, i.e. significant out-of
-pocket expenses can be incurred, to sell a property that is
involved in a 1031. Given that none of the sale proceeds can
be used to pay for repairs and the existence of significant
equity, my strategy will then be to give a buyer credit
against the purchase price for repairs instead of laying out
the cash myself. I will be "saving" $50K by doing a 1031 but
I didn't count on the fact that it might cost me several
thousand dollars out-of-pocket to do it. Before I really
thought about the implications of the 1031, I was thinking I
would be "re-paid" out of the proceeds like in a "regular"
sale but it doesn't work that way for a 1031 sale.

Thanks.

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"Florida" <lelliot3[at]earthlink.net> wrote

- quote -

If the dollar amount/type of work done is small, put them on
Schedule E, as they look and smell more like a "repair". If
the dollar amount/type of work is much larger, to the point
of an improvement, make a basis adjustment.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

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"Florida" <lelliot3[at]earthlink.net> writes:

- quote -

If the property is currently available, or occupied, and the
expenses are ordinary/necessary, or capital improvements
(added to basis), there is no problem with reporting the
expenses on Schedule E. When you speak of a "1031", do you
have an intermediary??? Do you REALLY know what you are
doing??? I'd suggest you engage a professional to help you
along in this area.

"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

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I have listed my CA rental property for sale and will be
doing a 1031. At a minimum, I will be making repairs to
clear the pest report. Can these expenses go on my Schedule
E? Are these acceptable 1031 selling expenses? (Probably not
since they won't show up on the HUD-1) Or do they just come
out of pocket for now and increase the basis of the "last"
property that I sell?

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