Property swap raises questions of tax deferment


November 15, 1992|By Los Angeles Times

Q: What kind of capital gains tax consequences will I face if I exchange my present apartment units for another set of units in another state? My ex-husband and I own a five-unit complex here. He lives in one unit, I live in another, one is rented and two are vacant because that is the way this stubborn guy wants it. The entire building is worth $600,000. I want to get my share and get out of this situation which has been going on now for 13 years.

A: If you manage to exchange your property for another in another state, you will be able to defer any taxes you owe on the appreciation of the apartment complex in California. However, whether you will actually be able to pull off a tax-deferred exchange is quite another matter.

Under the restrictive Internal Revenue Service guidelines, only the rental units (not the unit you are living in) can qualify for a Section 1031 exchange. You could buy another principal residence and roll over the gain apportioned to your own apartment to avoid tax on that, but it would have to be a separate transaction.

Another issue to consider is how you and your ex-husband hold title to these apartments. If you are partners, then you would have to jointly invest the proceeds from the apartment house sale as partners. (This would certainly defeat your goal of getting away from your ex.) However, if the property is held as tenants-in-common, you could make a deal on your own and go your separate way.

Your best bet is to consult an attorney or accountant who is thoroughly familiar with the laws governing real estate exchanges.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.

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