2014-paid approximately $24,000 for 1983 mobile home on lot in Cottonwood, AZ. Used as rental. July, 2015, selling for cash $84,900. I reside full time in CA. I am single and my AGI is approximately $70,000. Will I owe capital gains tax? If so, approximately how much? Can I avoid taxes by using $ to buy a home in CA? Must I use all the $ to buy home in CA? Is there a time limit for me to reinvest the money after the sale is final? Are there any other best tax strategies for the money? The property is in my revocable living trust, and I am the trustee.
The fact that the property is in your trust is not relevant for income tax purposes. If you paid $24,000 in 1983 and used it as a rental you need to find out how much depreciation you have taken in the 30+ years since you bought it. For example, assume that your basis is now down to $10,000 (it might be less). You will owe a capital gains tax on the difference between the $70,000 sales price, minus sales expenses, and $10,000. If that is your only taxable income for the year your tax will be very low, perhaps only 15% federal For California the tax might be as low as 5%. You really need to sit with a tax return preparer and have the TRP run a sample return to get the actual figures.
You would not be able to avoid tax by purchasing a home that you intended to use as a personal residence. However, you could potentially defer the gain on the sale by doing a Section 1031 like-kind exchange, but only if you purchase another investment property. There are strict timelines involved with 1031 exchanges, and you would need the assistance of an attorney or accountant to facilitate the transaction. If you want to do a 1031 exchange, it must be planned in advance of the sale of your property, and a qualified intermediary must be used to hold the cash from the sale while you identify a replacement property.
As the above poster mentioned, you should meet with an accountant to calculate the potential tax liability on your capital gain and to discuss your options. The time and expense involved in a 1031 exchange may not be worthwhile depending on the amount of tax you're faced with. And again, 1031 is not an option if you want to buy a personal residence.
This answer is of a general nature and is not intended as legal advice. The fact that I have responded to your question is not intended to form an attorney/client relationship and I do not agree to represent you without further review, a conflict search, an executed legal services agreement, and the payment of an agreed retainer. In accord with the provisions of IRS Circular 230, this answer can not be used as a defense against the assertion of any tax penalty. Pursuant to federal law, I am a debt relief agency. I file cases in Federal Bankruptcy Court, US Tax Court and Oregon Tax Court.
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