Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums
Dave T

Capital Gains Taxes and and an IRA question

Recommended Posts

I received a private e-mail with the following questions. I am posting my responses here in this public forum because I believe others may benefit from the information.

 

Q.  I keep hearing about a way to avoid the large capital gains taxes involved when selling investment property... Now I am not trying to avoid taxes but I am very curious to this "method" that other investors are using . Currently my partner and I have two rental income properties we bought cheap and rehabbed. Do you have any advice on this subject of capital gains?
A. Perhaps those you are hearing from are referring to a Section 1031 like-kind exchange. Section 1031 of the tax code permits owners of investment real estate to sell their property and replace it with other investment property, while indefinitely deferring any capital gains taxes due on the sale of the relinquished property.'

 

There are specific requirements for the 1031 exchange that must be met to defer the capital gains taxes, and a partnership interest complicates your ability to participate in a tax-deferred exchange. Your tax advisor can give you specific details for your situation.

 

Q.  I have been noticing alot said about Ira's and their tax deferrment into real estate.. can you tell me more about this... and if i were to sell a house for 30,000 and put 20,000 into a self-directed Ira and kept out 10,000 for myself what would I have to pay taxes on , the 30,000 the 20,000 or the 10,000
A. You would pay taxes on the entire profit from the sale of the real estate. I am not an IRA expert, but I believe your annual contribution to an IRA is limited to something like $3500.

 

If your IRA owned the property free and clear, and sold the property, then all the profit is tax free as long as it stays in the IRA. Withdrawing $10K for yourself incurs early withdrawal penalties in addition to ordinary income taxes. Furthermore, use caution when considering how you will use your IRA for your real estate activities. You do not want to run afoul of tax rules related to conducting a business from within your IRA, as well as Unrelated Business Income Taxes.

 

If you have a self-directed IRA, your IRA custodian runs into this issue all the time and is in the best position to provide specific guidance.

Share this post


Link to post
Share on other sites

×
×
  • Create New...