Section 1031 Exchange

1031 Exchange:
If you sell certain property and have a taxable gain, you can defer taxes if you structure it as a Section 1031 exchange. Equipment used in a business could qualify, but if old equipment is traded in on new equipment, it is not necessary to use a Sec. 1031 intermediary. In the case of a rent house, however, you are not likely to trade in an old house on a new house. You are more likely to sell the old house, then, after a delay, buy a new rent house which gives rise to the possible need to use the provisions of Section 1031.

The following example illustrates the process:

Day 1: Sell rent house FOR $ 110,000 with funds going to a qualified intermediary.
The house cost $ 100,000 and is fully depreciated so the basis for
gain/loss is zero. If there is no section 1031 exchange, then the entire $110000 would be taxable as ordinary income.

Day 45 (or earlier): [1] Identify the Replacement property ( new rent house) which
will cost of $ 200,000—consisting of $110000 down payment derived from the sale of the old house and a mortgage for $ 90,000.

[2]Complete the “identification of Replacement
Property” and give it to the qualified intermediary. NOTE: this can be
done before the 45th day if the replacement property is identified earlier.

Day 180: This is the deadline. The replacement property must be
acquired by the 180th day.
There will be a deferred gain of $ 110,000 on the old house.
The new house will have a depreciation basis of $ 90,000 ($200,000
minus the deferred gain). NOTE: The $ 90,000 basis assumes NO
value for the land. If the land was worth $25,000 then the depreciable
value would be reduced to $ 65,000.

File even if you can't pay

File your tax return even if you can’t pay. If you can’t file, request an extension and pay what you think you owe—or at least part of it.

Here is what the IRS says:

Taxpayers who owe taxes and don’t file their tax return by the deadline may face interest on the unpaid taxes and a failure-to-file penalty. Interest and penalties add to the total amount a taxpayer owes. Filing by the deadline allows taxpayers to avoid the failure-to-file penalty, even if they can’t pay all or some of their taxes by the deadline. Taxpayers who can’t file their return by the deadline can request an extension of time to file. However, an extension of time to file is not an extension of time to pay.

NEW 2009 TAX PROVISIONS

The American Recovery and Reinvestment Act of 2009 was signed into law on February 17, 2009, and contains the following provisions:

New economic recovery payments designed to give taxpayers cash benefits during 2009 to help stimulate the economy.

A new Making Work Pay tax credit designed to give working families up to $400 ($800 MFJ) when filing their 2009 tax return.

New withholding tables designed to increase an employee's take-home pay during 2009 as a result of the new Making Work Pay credit.

An increase in the Earned Income Credit for families with 3 or more qualifying children.

An increase in the refundable portion of the Child Tax Credit.

A new and improved Hope Scholarship Credit renamed the American Opportunity Education Tax Credit.

A new provision to allow students to treat the purchase of computers as qualified education expenses under Section 529 plans.

An extension of the First-Time Home Buyer Credit and the elimination of the recapture rules for homes that are held more than 3 years.

A new sales tax deduction for non-itemizers who purchase a vehicle.

A new exclusion for unemployment benefits received.

AMT relief for 26 million families.

An extension of the Special Depreciation Allowance.

An extension of the increased Section 179 deduction limits.

Net Operating Loss provisions affecting 2008 tax year NOLs.

The ability for certain businesses to spread cancellation of debt income over 10 years.

New targeted groups for the Work Opportunity Tax Credit.

New Section 1202 small business stock rules.

New safe harbor rules for estimated tax payments.

New S corporation built-in gains tax rules.

Extension and new provisions for the various energy tax credits.

New provision affecting transportation fringe benefits.

New COBRA continuation coverage rules.

and more…