If I sell a undeveloped land, can I pay down my primary residence's mortgage with the proceeds to avoid capitol gains tax on the land sale?

Asked by Christie Robinson, Salinas, CA Sun Oct 3, 2010

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Mike Kelly A…, Agent, Santa Rosa, CA
Thu Nov 4, 2010
Christine, The operative phrase, "Contact a CPA who specializes in 1031 Tax Deferred Exchanges"! But remember, to avoid capital gains you need to exchange "like-kind" properties or those properties held for investment purposes. Your residence does NOT qualify under this code. It is the 1034 code which deals with residential sales. One does NOT exchange into a property already HELD for investment purposes. You "acquire" properties through the 1031 Tax deferred process. (I won't go into "reverse exchanges" as this is too confusing and does NOT fit your criteria).
One can convert an existing "residential" usage into a future 1031 candidate but it won't have the results you are looking for. I would be VERY careful with any tax deferred exchange. Contacting a fully accredited and "safe" exchange facilitator is THE way to go. I use Toni Esposti of OREXCO Exchange Services in Marin County. There are specific "steps" one needs to fully document along the way. Blowing an exchange will cost you thousands in unpleasant tax!!!
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Monterey Pen…, Agent, Pacific Grove, CA
Mon Oct 4, 2010
Hi Christie,

You should discuss this with your accountant. I don't believe you can. The only way that I am aware of you being able to avoid paying capital gains is if you did a 1031 exchange into "like property" which your primary residence clearly isn't. Again, take it up with your accountant or a tax expert who may know some other options for your particular case.
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Scott Miller, Agent, Boca Raton, FL
Sun Oct 3, 2010
Here's an example, Christie.

My client sold a residential town home in California during the apex of the market for $600K. He netted $400K. He then took that $400K and put it down on a commercial warehouse that he purchased for $1M here in Southeast Florida that is rented to an excellent, long term tenant. The tenant's monthly rent pays for his new mortgage, which I helped him secure via Lehman Brothers not too long before they melted down. He got an amazing 6% rate on a commercial loan and has a nice, income producing property.

Here are some rules directly from the IRS:

http://www.irs.gov/businesses/small/industries/article/0,,id=98491…

If you think a 1031 is for you, you're allowed to invest that rolled-over money anywhere in the US, including Florida. My team can also help you secure commercial investments with AAA-rated tenants across the United States.

GOOD LUCK.

Scott Miller, Realty Associates, Boca Raton, FL
0 votes
Curt Abramson, Agent, Santa Cruz, CA
Sun Oct 3, 2010
Christie,
I don't think so, either, but as Scott said, consult a CPA to be sure. What you could do if the land was being held for investment is a tax deferred exchange, known as a 1031 exchange. You basically take the proceeds of the sale and roll them over into another "like-kind" investment property, which could be income or commercial property, another piece of land, or other real estate other than your personal residence. There are lots of rules to do this successfully, but it's a viable way to defer (not avoid) taxes on the gain.

If you have questions, feel free to call or e-mail me through my website, listed below.
0 votes
Scott Miller, Agent, Boca Raton, FL
Sun Oct 3, 2010
Hi Christie. I definitely do not think so, but the right person to ask would be a CPA for sure.

There is an alternative, though. It's called a 1031 exchange. I did one a couple of years ago for a million dollars and my buyer was VERY happy with the results. Certain, very specific conditions apply, so you have to make sure it's for you. I'll track down a link for you and post the terms so you'll know what's involved.

GOOD LUCK!!

Scott Miller, Realty Associates, Boca Raton, FL
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