Residential 1031 Question
Will this work?? Any Thoughts??
1. I sell 60% of OLD Rental Unit (100% is valued at $200k) to my daughter with 100% seller financing with deed and mortgage duely recorded.
2. I then own 40% = $80000 of the OLD Rental Unit. and she owns 60% = 120000
3. My daughter and I then sell (4 months later) the OLD Rental Unit. Sale Price = $200,000
4. Disposition of Sale proceeds of the OLD Rental Unit: My daughter’s $120,000 mortgage is paid off (to me) and $80,000 goes to the 1031 accommodator for the NEW Rental Unit. (Note my basis in the OLD rental unit is $122,500)
5. We then Exercise option to purchase the NEW rental unit (under our current lease) and purchase the NEW Rental Unit - Purchase Price = $250,000 - [Financing of NEW rental unit = Daughter borrows $170,000 (mortgage) from me (I will have the cash), I take a mortgage to her 68% and $80,000 is applied by the 1031 accommodator from sale of Old Rental Unit as a down payment]. It is then rented out as follows:
68% ($170,000) = My daughter owns and she rents out to her friends = 2 bedrooms).
32% ($80000) = I own and rent to my daughter at fair market rental rate = 1 bedroom).
6. Result = 100% rental use of the NEW Rental Unit and no personal use by my daughter of her share in the property.
What are your objectives? I can then respond better.
[addsig]
The 12k per year does not go against your lifetime cap. If you go over that, you must file a gift tax return for the year of the gift. It is not taxable up to the lifetime limit.
You guys are right on the ball. I should have said the annual gift tax exclusion was increased to $12K this year.