We have a tree farm we purchased for cash 10 years ago for $250,000.00 and depreciated its barns by $20,000.00. No mortgages.

We have an offer to purchase it for $575,000.00, with sales expenses of about $60,000.00, netting us about $515,000.00.

We would like to do a Sec. 1031 exchange for a ranch in Texas, but we are happy with replacement property at $400,000.00. 

According to Sec. 1031(b), we get taxed first on the $20k depreciation, but what is the capital gains tax on the cash/boot we would receive: is it capital gains tax on the $115,000.00 cash-out we would receive on this "buy down?" We would like to invest the $115.

We want to be asured the actual "like-kind" exchange replacement property value of $400,000.00 is not immediately taxed in the exchange.

Many thanks!

Woody - great question. 

Your tax would be at 15% (plus state) on the $115,000 less the $20,000 plus the first $20,000 taxed at ordinary income rates.

Another option is that you can exchange from one property into two or more properties and avoid the capital gains tax all together.  Or if the Texas ranch needs improvements you could do a build to suit exchange.   This is more complicated but possible - please contact Exeter Exchange for more details on this.

Also you didn't mention if there was a current debt on the tree farm which would need to be replaced in the new purchase.

You are correct that you would not be taxed on the replacement property - however the "tax basis" will be adjusted for any deferred gain that you have not yet paid tax on.

Regards,

Many thanks, Tim!!!

 nope, no mortgages on the tree farm at all.

will be calling you soon....