2003 Tax Help Archives  

Keyword: Replacement Property

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10.3 Capital Gains, Losses/Sale of Home: Mutual Funds (Costs, Distributions, etc.)


If I sell one mutual fund and use the proceeds to buy another, do I have to report the capital gains or can I wait until I sell and don't buy another fund? Does it matter if I stay within the same family of funds?

You would have to report any capital gains realized on the sale. Even assuming this transaction meets the requirements of an exchange, rather than a sale, the exchange of shares of one fund for those of another is a taxable exchange. This is true even if both funds are within the same family of funds.

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11.4 Sale or Trade of Business, Depreciation, Rentals: Sales, Trades, Exchanges


Can you sell rental property and reinvest it into rental property without paying capital gains tax?

No. A deferred exchange will be treated as a sale rather than a tax free exchange if the taxpayer actually or constructively receives money on other property in full consideration of the relinguished property. However, rental property may be exchanged directly for other rental property of like kind. Gain realized from such an exchange is deferred. For additional information on like-kind exchanges, refer to Publication 544, Sales and Other Dispositions of Assets.

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I have heard that I can sell my rental property and use the proceeds to purchase rental property of equal or greater value and the transaction is viewed just like an exchange in that the tax is deferred until the new property is sold. Is this true?

What you have heard about is a like-kind exchange. A like-kind exchange, when properly executed, represents a way to postpone the recognition (taxation) of gain essentially by shifting the basis of old property to new property. If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. The basis of the property received is the basis of the property given up, increased by the money paid. There are several rules and restrictions that must be strictly adhered to in order for a successful exchange to take place. Deferred exchanges will be treated as a sale rather than an exchange to the extent that the taxpayer actually or constructively receives money or other (not like kind) property in exchange for the like-kind property given up. For more information refer to .Publication 544, Sales and Other Disposition of Assets , and Form 8824 (PDF) Instructions, Like-Kind Exchanges .

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We sold a rental property last year and used the 1031 Tax Deferred Exchange law to defer the gain into another like-kind property. How do I report this transaction on my tax return?

Report the exchange of like-kind property on Form 8824 (PDF), Like-Kind Exchanges. The instructions for the form explain how to report the details of the exchange. Report the exchange even though no gain or loss is recognized.

If you have any taxable gain, resulting from the transaction, because you had a partially deferred exchange or otherwise received money or unlike property, report it on Form 4797 (PDF), Sale of Business Property, and Form 1040, Schedule D (PDF), Capital Gains and Losses. Refer to Publication 544, Sales and Other Dispositions of Assets, which has a detailed section on qualifying like-kind exchanges.

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