Tax Implications when Trading Real Estate for a Sailboat

[sojourning]

I live in California. I am a Contractor and find that I can no longer afford to operate a business here, and the logic of taxation here is not conducive to the pursuit of happiness.

So, I have a free and clear property and some tangible assets that I am about to trade for a sailboat in Texas.

I don't know how to structure this as far as bartering and taxation.

Any help would be appreciated.

Soj.

[roverhi]

You can defer captial gains on a residence on the purchase of another residence that happens to be a boat as long as the boat is higher or equal value to your property. If the property is your residence then there would be no tax due at time of sale but would be defered till you quit buying equal or higher value residence. Did that many years ago when property often was less costly than a boat.

With the current economic situation and Obama running up outlandish deficits, I would be inclined to pay the taxes now as they will only get way bigger in the future. You are only taxed on capital gains above $250,000 as a single or $500,000 married on a personal residence.

Doubt that you can do a like kind 1031 exchange as that only works for realestate to realestate.

[denverd0n]

You can defer captial gains on a residence on the purchase of another residence that happens to be a boat as long as the boat is higher or equal value to your property.

That rule changed in 1997. The rule now is that an individual can exclude up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of real property if the owner used it as primary residence for two of the five years before the date of sale (the two years do not have to be continuous). This exclusion is available no matter what you spend on your next property. In fact, you don't even have to buy another property if you don't want to.

In addition, this exclusion completely abolishes the old "rollover residency replacement rule." As such, it no longer matters what you spend on the next property that you buy. There is no additional deferral available by spending more on your next property than you got for the one you sold.

For the OP, just remember that internet tax advice is worth just as much as internet legal advice, which is to say that it is worth exactly what you pay for it--nothing! And, yes, that includes my comments above. No one should EVER rely on a posting on an internet forum for these kinds of things. Do your own research, or get competent professional advice.

In this case, you need professional advice. Because real estate transactions are required to be in writing, and are required to be recorded, you can't just say "Here, you take my property and I'll take your boat and we'll call it even." You can find lots of good advice on a forum like this one, but this is a case where you really need to bite the bullet and pay a professional.

Good luck!

[S/V Illusion]

The tax implications on bartered goods are different than that with which most people are familiar. All of the above is irrelevant except for one thing - find an accounting firm which has a division devoted to this issue and ask them, not people on the internet!

One such firm is PWC (Price Waterhouse)

[sojourning]

I'm considering trading raw land, a new truck and an RV for a sailboat. I'm thinking that the values are based upon wholesale values and I just don't have a clue as to sales tax. I think I have to pay a property tax every year in california. The boat is in texas and perhaps I could leave it there and look for a new place to live in the US. Calfornia has been traumatizing as a business owner. These officials out here remind me of the sheriff of nottingham!

Is there reasonable places to live in the US on a coast that isn't punitive for business ownership?

I'm going to place myself in a position looking for work in a new place and living on a boat.

I have to maintain my home I built in california until the economy picks up.

I am looking for a structure to do this with.

[S/V Illusion]

Originally Posted by sojourning

Is there reasonable places to live in the US on a coast that isn't punitive for business ownership?

I'm going to place myself in a position looking for work in a new place and living on a boat.

.

I doubt anyone here is qualified to make an objective evaluation of which state, among all on both the east and west coasts, is the least "punitive".

Again, you would be better served going to a firm such as PWC (with whom I have no association) or any similar national financial firm to figure that out if it is even answerable.

[sojourning]

I'm not look for a contractual advice, I'm hunting for somebody that may have done this to gain an idea.

I thank you for your concern though.

I think most people know not to take internet advice. Especially people buying boats. Most of the straglers have been taken by the nigerian scams by now.

Are you a tax consultant?

[S/V Illusion]

In as former life but not anymore. We see far too many people here soliciting advice on things for which the internet should never be used and an equally large number of people far too willing to provide bad info or unsubstantiated opinion masquerading as fact, some of whom are prolific posters.

[Charlie]

Of course you need to look this up but a 1031 exchange is not just for real estate. It is any like kind equipment. You can not do real estate for a boat. As far as the RV and the truck go those may or may not work. If you sell them for a loss there is no taxable event. Problem is the depreciation will be subject to recapture. This is a problem for the RV and the truck but not the land b/c land cannot be depreciated.

The safe harbor for a 1031 exchange is that the items exchanges have to have the same depreciable(SP?) according to the IRS tables. I have done two 1031 exchanges on boats and multiple ones on real estate.

[hellosailor]

Soj, you will probably find both barter and real estate transactions covered in good detail by the source at www.irs.gov they have gobs of information online. AND, a toll-free phone number where they will give you advice--even if that isn't legally binding advice.

All things considered, I would suggest buying an hour's consult with a CPA or EA (IRS Enrolled Agent) who is familiar with these issues and can put them in context for you.

You might have some additional issues in Texas if you are registering the boat there, as they may want sales tax based on the 'sale' value. If nothing else, check out the tax issues regarding purchase and registration of the boat with the local authorities as well.

[osirissail]

As to where to relocate - generally any State with a low amount of "social services" is less onerous than a State with a high level of social services. I would suggest researching the States from Lousiana, Mississippi, Alabama, Florida, Georgia and South Carolina. All are coastal States with different levels of taxation but normally there are plenty of loopholes available to legally avoid a big tax bite. You just have to find them.

[Pelagic]

Originally Posted by S/V Illusion

In as former life but not anymore. We see far too many people here soliciting advice on things for which the internet should never be used and an equally large number of people far too willing to provide bad info or unsubstantiated opinion masquerading as fact, some of whom are prolific posters.

I understand your concern Illusion but I am of the opinion that most people who come on here with a “question” that concerns them are merely thinking out loud and looking for other opinions or someone with a similar experience that will hopefully enhance the quality of their “question”

I am always trying to find a general consensus amongst my fellow sailors before I then invest in professional advice which sometimes by its very nature, can be quite biased.

I never read anything as a fact… only an opinion… and especially my own.

Is Tax advice an exception to this rule and should any one consultant be considered infallible?

I ask this only because I have managed to remain totally ignorant of domestic tax issues…. hence my name…

[S/V Illusion]

Originally Posted by Pelagic

I understand your concern Illusion but I am of the opinion that most people who come on here with a “question” that concerns them are merely thinking out loud and looking for other opinions or someone with a similar experience that will hopefully enhance the quality of their “question”

I am always trying to find a general consensus amongst my fellow sailors before I then invest in professional advice which sometimes by its very nature, can be quite biased.

I never read anything as a fact… only an opinion… and especially my own.

Is Tax advice an exception to this rule and should any one consultant be considered infallible?

I ask this only because I have managed to remain totally ignorant of domestic tax issues…. hence my name…

I agree that most here post questions to elicit discussion more than to obtain definitive answers. My real concern is that there are a few I have noticed here (not necessarily this thread) who have no clue what they are talking about as evidenced by their responses but for some reason feel compelled to respond in declarative statements posing as fact.

I get the fact there is a certain personality type prevalent here who feels the need to sound authoritative and reacts defensively when challenged -

What my point was (perhaps badly worded) is that folks here sometimes take what is written here as true because it is worded as fact rather than what it really is - opinion or perception, often misinformed or misleading.

[waterworldly]

roverhi, you must be high: "With the current economic situation and Obama running up outlandish deficits, I would be inclined to pay the taxes now as they will only get way bigger in the future" WHO ran up the deficits? Perhaps you didn't read a paper between 2000 and 2008 . . .