"Stuart Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

Right you are Stu, but for those who cannot perform a
"proper reading", there are other sources of valuable
insight.

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- quote -


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Lynn Guini wrote:

- quote -

A proper reading of the code section says exactly the same
thing. The code is the main source of the law. Everything
else is interpretation.

Stu

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- quote -

Section 1034 was repealed several years ago. See section
1031 now.

- quote -

I don't agree. If that were the case it should say that it
is an exchange "of properties held..." Since it uses the
singular rather than the plural, it seems to be logical that
the test would be the use the taxpayer puts the property to,
not what the seller did.

Stu

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<Snipped by moderator: extra-large posts require manual intervention
- quote -

From IRS Pub. 544:
"Qualifying Property
In a like-kind exchange, both the property you give up and the property you
receive must be held by you for investment or for productive use in your
trade or business. "

It says nothing about how the acquired property was held by
its previous owner. I think you need to read beyond the
mere code section, in order to determine the proper meaning
and interpretation of the code.

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Stuart Bronstein wrote:
- quote -

Wrong. See 1034(a), quoted in part below....

- quote -

Your look is too narrow.

BOTH PARTIES must have property that qualifies when entering
into the exchange. Your view is only from one side.

A personal residence (let alone the principal residence)
simply isn't going to be business or investment property,
period. A home office isn't sufficient to convert it.

Read IRC 1034(a). It is an "... EXCHANGE [emphasis added]
of property held for the productive use in a trade or
business or for investment ..." which means that to BOTH
parties entering into the exchange, the property (or
properties, except for any "boot" to equalize the value [of
course]) GIVEN UP must already be of that character. You
are correct with your implication that the parties of the
exchange only need intend a business or investment use of
the property (or properties) received, including another
exchange (cf. accomodators).

- quote -

If it's a rental home beforehand, it's "business/investment"
property.

- quote -

Like I say above, that is insufficient to qualify for an
exchange in the first place.

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D. Stussy wrote:
- quote -

I haven't researched this issue. But while section 1031
requires that the property be like kind, it does not say
that it _already_ has to be investment property, but that
the property acquired in the exchange "is to be held either
for productive use in a trade or business or for
investment."

Looks to me as if the intent of the person acquiring the
property is the key.

For example, if someone has a rental home and wishes to
exchange it for another home to rent, is the tax deferred
basis of the exchange defeated if the new property was owned
by people who were living in it at the time he bought it? I
can't imagine that would be correct.

This conclusion seems to be supported by Treas. Reg.
1.1002-1(c), which says,

"Certain exceptions to general rule. Exceptions to the
general rule are made, for example, by sections 351(a), 354,
361(a), 371(a)(1), 371(b)(1), 721, 1031, 1035 and 1036.
These sections describe certain specific exchanges of
property in which at the time of the exchange particular
differences exist between the property parted with and the
property acquired, but such differences are more formal than
substantial. As to these, the Code provides that such
differences shall not be deemed controlling, and that gain
or loss shall not be recognized at the time of the exchange.
The underlying assumption of these exceptions is that the
new property is substantially a continuation of the old
investment still unliquidated; and, in the case of
reorganizations, that the new enterprise, the new corporate
structure, and the new property are substantially
continuations of the old still unliquidated."

As long as the taxpayer starts with one property he uses to
rent out for residential purposes and ends up with another
he uses in the same way, I don't see a problem.

Stu

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Stuart Bronstein wrote:
- quote -

I disagree. If in the hands of the prior owner, it wasn't a
business (or investment) asset, then it didn't qualify for
exchange treatment in the first place. Remember that he
said that he is acquiring it VIA the exchange.

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D. Stussy wrote:
- quote -

If he's acquiring it for rental, I don't see why that would
be a problem. What the prior owner did with it should be of
no importance.

Stu

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

Even if it would be a business asset in his own hands, it
would not qualify for 1031.

IRS has taken and apparently defended the position that a
replacement asset acquired from a related party is never
eligible for a deferred 1031 exchange: Rev. Rul. 2002-63, I
believe. Only a straight deed swap might work, and this
doesn't sound like one.

--
Chris Green

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"amynathan" <bliechty[at]mac.com> wrote

- quote -

Whatever the property tax assessor says the value of the
home is.

If that happens to be the purchase price, then so be it.

BTW: You have to do a like-kind exchange for "like-kind"
property, so I hope you plan to collect rents from your
parents.

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

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"amynathan" <bliechty[at]mac.com> wrote:

- quote -

Conventional wisdom is that a deferred 1031 exchange will be
rejected by IRS if the replacement property comes from a
related party, regardless of the two-year rule; see Rev.
Rul. 2002-83. The question of whether this transfer is
possible, even when a qualified intermediary is used, is
still disputed. So don't assume you can do the 1031 exchange
without definitive advice (the kind you pay for, not the
opinions people have on Usenet), and be prepared for the
answer that you cannot do it at all.

The property tax situation is quite a bit more favorable.

In California, real property transferred from parent to
child is exempt from reassessment under several conditions;
the following will be of particular interest to you:

R&T Code 63.1(a)(1): the property was the parent's principal residence
(the parent must have held the homeowner's tax exemption for the
property to qualify).

Or, if that doesn't work for you:

R&T Code 63.1(a)(2): the value of the property transferred
is $1 million or less (joint tenants who transfer jointly
can add their exemptions, so a husband and wife can transfer
$2 million this way).

You have to contact the county assessor to apply for the
exemption; it won't happen automatically.

--
Chris Green

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amynathan wrote:

- quote -

If it's your parents' home, it's not going to qualify for a
1031 exchange as it is not a business asset (or used for the
production of income).

- quote -

You're thinking wrong. Proposition 58, not 13, governed
parent-child transfers. You get their basis but you may
have to file additional paperwork with your deed filing.

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amynathan wrote:

- quote -

It depends on the value of the property and if they have
transferred any property to you before (either by gift, sale
or otherwise). Assuming your parents live in it at the time
they transfer it to you, they can transfer up to $1,400,000
without increasing property tax. If the home is worth more,
property tax can be raised proportionately. Any prior
transfers will be deducted from that figure.

Stu

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If I do a 1031 property exchange and acquire my parents home
what will assessed property value for the purposed of
determining property taxes be?

Will assessed value and tax basis remain at Prop 13 fixed
levels? If not, then how is the property tax assessed value
established? If it matters, I am a non-resident of
California and will not be living in the house for at least
3 years.

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