Capital Gains tax questions

To avoid any tax consequences you have to buy the exchanged property for the same price or more than you receive for the sale of your property. To the extent that you don't, the balance will be taxed.

I don't do returns, so I'm not absolutely positive on this, but I believe there will be no tax consequences, even for depreciation, until you actually cash out. The new property will have a carry-over basis, which reduces the amount of depreciation you can take. But until you sell that building (or a subsequent building if you again do a 1031 exchange), you shouldn't be taxed on the capital gain recapture.

It has to go into an escrow account held by a third party, and you can't either touch or even have any right to touch even $1 of that money.

Get a good 1031 trustee/escrow company, and they will help you make sure you keep everything legitimate.

ladynoknow: Section 1031 requires an exchange of some property for some other property. It does not provide for - actually it **prohibits** - the reinvestment of the proceeds from the sale of one property by the seller into the purchase of another property.

If you are talking about, or even just thinking about, "investing the net proceeds" from the sale of your rental property, you're gonna end up where you don't want to be. You have to envision the transaction and refer to it as an exchange of property if you want to ensure that you will have any chance of being sure to qualify for Section 1031 deferral of your potential income tax liability.

Please do yourself a favor and get some "hands-on" professional help before you get your debits and credits mixed up and put some money in your account and then end up with a tax liability that you can't afford to pay because you invested your entire liquid assets in the "replacement" property!!

It has happened. Make sure it doesn't happen to you.

The absolute rule is that you are not allowed to touch, or even to just be able to touch, the proceeds from the old property. Stuart B. is giving it to you straight.