Expert: Sue Bernstein - 8/30/2005

Question
Dear Sue,

I own 2 homes which I bought as primary residences in the Virginia area, and the second home in question I closed on June 20, 2005. The owner is currently renting back, When the owner moves which is on September 10, 2005 I wish to sell the place. What are my best options to avoid/defer paying capital gains tax.

If the 1031 is the only solution then here are some questions:
1) Am I eligible to use a 1031 exchange for this purpose. If I am not eligible because it is a residential property then is there any way to convert it to a property wherby I can use the 1031 or a similar tax tool
2) What is the tax rate that I will be charged if I do not use the 1031 exchange
3) Can I create the 1031 anytime or is it made at a specific period before closing
4) Is the 1031 specific to a property or can it be used for all properties
5) When I see the property how does the money go into the 1031 exchange.. do I need to specify this to the closing company/title company
6) After the property has been sold do I need to purchase another property immediately or is there a max/min period for purchase
7) Should the price of the new property be same or more than the selling price of the current. If it is less is there a problem; that is would I get taxed for the difference
8) Does the money in a 1031 earn an interest
9) Are they different kinds of 1031's
10) What is the approximate cost of creating a 1031. Any website that you know of that will create it or would it be better going to a title company.

If you have any other information in this regards like taxes, attorneys and related weblinks that would be really great.

Thanks for your time and your reply would be greatly appreciated.
Hilario

Answer
Hilario,

In order for a property to be considered an income property rather than your personal residence you cannot have lived in it for 2 out of the last 5 years.  All tax questions need to be referred to an accountant.  There are companies that specialize in 1031 exchanges (First American comes to mind) and they should be able to answer all the rest of your questions that are not accountant related.

Good luck and sorry I couldn't be of more help

Sue Bernstein