Jorgen Rex Olson
Jorgen Rex Olsen
Member Since: May 21st 2018
Jorgen Rex Olson is a graduate of Washington State (B.A., cum laude, 2008) and the Indiana University (McKinney) School of Law (J.D., 2012). He writes for Mackay, Caswell & Callahan, P.C., one of the leading tax law firms in New York State.
Mackay, Caswell & Callahan, P.C.
Feb 12th 2020
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Jul 24th 2019
Yes this is clearer. I believe the CPA is correct. The 500k cash can be taken out. This is treated as gain, but is excludable (so tax free under 121), and so there would be 188k of gain left to defer. This can be deferred by spending the remaining cash of 210k and obtaining a loan of equal amount. Any additional cash received would be cash boot, taxable to the extent of the gain, and any reduction in loan would be considered debt relief (or mortgage boot), also taxable to the extent of the gain.
Jul 24th 2019
I’d need to know the adjusted basis of the property to give a full response, but unless the gain is less than the exclusion, my answer is that the target price for the replacement property will be 800k. The 100k closing costs can be taken from the $1.4M proceeds, that’s fine, but then the 500k exclusion would bring the proceeds to 800k. The exclusion means that the cash (gain) from the proceeds isn’t counted in the gross income of the taxpayer. So after paying off the 600k debt, the taxpayer would need to buy a replacement property with a minimal sales price of 800k to reacquire enough debt and defer whatever capital gains are remaining. The intermediary is incorrect, because as long as the closing costs of 100k are allowable, they can be paid with exchange proceeds without any tax consequences.