The 1031 Exchange Institute

Welcome to The 1031 Exchange Institute™. The 1031 Exchange Institute is your complete online resource for 1031 exchange, 1033 exchange, 1034 exchange, 721 exchange, 453 installment sale and 121 exclusion information.  Information will also be provided regarding Self-Directed IRAs, including Traditional IRAs, ROTH IRAs, SEP-IRAs and SIMPLE IRAs. 

The 1031 Exchange Institute is dedicated to educating and informing real estate investors and their advisors on the benefits of 1031 tax-deferred exchanges and other tax deferred and tax exlcusion strategies so they can make better informed investment decisions.

1031 Exchange Discussion Forum > Does loss from New property offset gain from old property?

I did a 1031 3 years ago for a rental property, the old property appreciated $30,000. the new property exchanged to has depreciated $25000. so if I sold the new property now, do I pay tax on the difference, $5000?

In otherwords, if I sell the current property with a 25k loss, does that offset the gain of the first property?
March 27, 2009 | Unregistered CommenterMike
Hi Mike,

Yes, you are exactly right. You would owe tax on the net accumulated gain over the entire period, or in your case, $5,000.00. You should also look into your depreciation recapture.
March 27, 2009 | Registered CommenterStaff
i've been exchanging for years now. does this mean that i have to go back to day one and pay taxes even if my current property has lost money? that doesn't seem fair.
March 30, 2009 | Unregistered CommenterSherman
Yes, each time you complete another 1031 exchange the basis in the old property as well as the built up or accummulated gain and depreciation are deferred or rolled over into the new property. The deferred gain and the accummulated depreciation build over time and through each 1031 exchange. You will trigger all of the deferred gain and depreciation recapture upon sale. Or, you can continue to 1031 exchange through out your life and never pay taxes. You heirs would receive a "step-up" in their cost basis when they inherit the property. This means that the deferred gain and deprecaition go away. Your heirs start fresh with a new cost basis that is equal to the market value of the property at the date of your death.

Does that help?
March 30, 2009 | Registered CommenterStaff
So ..to get around all the gains ..i hold 1031 property for five years..and the last 2 years of 5 year period ..I convert it to my residence ..living in property

Now it falls under the principal residence rule with 250/500k capital gain exclusion upon sale (Bush signed into law 2004)

Agree ?
June 16, 2011 | Unregistered Commenterbrent
Yes, except that the 2008 Tax Act also changed this strategy so that the gain is now prorated between the time you held the property as rental/investment property and the time that you lived in it as your primary residence. The gain amount prorated or allocated toward the time that you lived in the property as your primary residence will be tax free and the remaining will be taxable. So, the longer you live in the property as your primary residence the better.
June 17, 2011 | Registered CommenterStaff
We have land we bought with a 1031 exchange 8 years ago and are looking to sell at a loss from the original purchase price. The 1031 exchange amount is exactly what the lot would sell for now. I had put monies together with my wife's 1031 to purchase this lot, so we had paid 40% more than what the lot can sell for now. Can you explain tax ramifications to completely cash out now to pay off other real estate loans?
January 10, 2013 | Unregistered CommenterRandingo
Hi Randingo,

Yes, it is based on the net gain in the property currently. In other words, you deferred some capital gain (and possibly some depreciation recapture) at the time you bought the property through a 1031 Exchange.

The property has since dropped in value. If the property has dropped enough in value (i.e. more than what the deferred gain was), then your deferred capital gain has been wiped out and you would have no taxable gain to worry about.

Check with your accountant to determine if the drop in value has enough to offset any gain. Have them review any depreciation recapture as well.
January 11, 2013 | Registered CommenterStaff
i sold a rental property in 2005 in a 1031 exchange and bought raw land with the intent of building another rental property. In 2012 i sold the land at a loss(less than the adjusted 1031 basis). would this loss qualify as a 4797 loss(deduct entire amount in 2012) or a capital loss(subject to $3000 annual limit)
February 7, 2013 | Unregistered Commenterbob