Subject:  Specific tax informaiton
From:  Alfred VanOosbree
Date:  Sun, 7 Nov 1999

Mr. Gray:

I have a condo with zero basis and a $60,000 first TD. I am interested in a 1031 exchange if possible, but wonder what the tax implications would be under the following scenario.

First of all I realize I have a "loan over basis" situation. Therefore:

If I find a higher priced property with a loan larger than my current one, can I defer the recapture situation and transfer my basis (with a subsequent lowering of what the new basis might be)? Of course, I'm assuming a 1031 transaction.

In the event I need a take out buyer (Missouri Waltz) is there any way the take out buyer can help me with this tax situation?

The approx. market value of the condo is $70,000, located in Palm Springs, Calif. with excellent financing, i.e. 7.75%, fully assumable, no qualifying, no prepay, until 2013.

Than you for any response you might care to make.

Alfred A. VanOosbree

Answer

Hello Alfred,

Thanks for writing.

It is possible to make a 1031 exchange in your situation.

With the potential gain being only $70,000, I wonder if it's worth the trouble and expense.

The mortgage over basis situation that you point out is mostly an issue if you want to make an installment sale, but "wrap around" deals are still possible.

I recommend you consult with a local tax advisor about your situation.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.