1031 Case Studies

Case Study #1 - Sale of Vacant Land

Diane Haines decides that she is going to sell some vacant land that she owns in the Panhandle.  She has owned this property for about 15 years. She initially purchased the property for $250,000 and is now selling it for $1,250,000.00. At the advice of a colleague, she contacted us about possibly doing a 1031 exchange. After answering her questions, and explaining the process to her, she decided to proceed with the exchange.
 
Diane sold her property for her asking price of $1,250,000.  Her basis was $250,000 which left her with a taxable gain of one million dollars!  Because she chose to do a 1031 exchange, she did not pay that tax bill which in her case would have been $150,000!  ($1,250,000.00 - $250,000.00 (basis) = $1,000,000.00 taxable gain at 15%). She took her proceeds from the sale of her panhandle property and purchased several vacant lots in North Carolina. She is already planning on building houses on each of those lots and renting out the units for additional income.

Case Study #2 - Sale of Rental Home

Carl Peet and his wife purchased their home New Mexico in the mid-70’s for $30,000.00. They later had three children and outgrew the house.  In the early 90's, Carl and his wife bought a larger house, but they kept the old house and rented it out. Today, that house is worth $500,000.00.

Carl and his wife are getting older, and the kids have all grown and started families of their own. They have since moved to Florida and want to sell their old New Mexico rental and purchase something close by. After looking at various properties in the area, they found one that was selling for $525,000.00. It was exactly what they were looking for. They sold the New Mexico property for $500,000. Carl is a Realtor, and he was somewhat familiar with 1031 exchanges. He gave us a call to see if what he wanted to do would qualify. We told him that it absolutely would qualify. By doing the 1031 exchange, Carl was able to defer approximately $101,820.00 in taxes!


Sales Price                                         $500,000.00
Closing Costs                                    ($30,000.00)
Net Sales Price                                  $470,000.00
Basis (Dep. $50K)                               $30,000.00)
Taxable Gain                                      $440,000.00

Approximate Tax Due                      $101,820.00
Depr. Recapture Tax (25%)              $12,500.00
Capital Gains Tax (15%)                    $66,000.00
State Tax (5.3%)                                  $23,320.00