Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

1031 & Residence

Posted by taxguru on August 5, 2006

 

Q:

Subject: 1031 as primary residence

I recently sold my rental as 1031 exchange.  I had separated from my spouse and was living in an apt. My husband did not want to reconcile the marriage.  since I have a chronic sickness, I can only work parttime as a substitute teacher.  thus I had to give up my apt and move into the 1031 as my primary residence 3 months after selling it.  I know I have to pay taxes to the state and Fed geovernment, but I do not have the money.  How do I ciontact the government and tell them about my situation?  Who and where do I contact them?  Will they allow me to pay on installment?  Please let me know. 

 

A:

There are far too many issues to go over for me to be able to cover everything that needs to be addressed; so you should be working with an experienced tax professional.

Unfortunately, we don’t have anyone to whom we could refer you. If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you.

Your email is a bit confusing in regard to the actual chain of events.  It can be interpreted in different ways.  if you did a 1031 exchange and then moved into the replacement property, effectively converting it into your primary residence, that event doesn’t constitute a taxable event.  If you then sold that property, there would be some taxes to worry about; but if you still own it, there would be no taxes at stake.

If you were in the middle of a 1031 exchange and cancelled it because of your marital problems, that would create a taxable event.

A good tax pro can untangle what really happened and help calculate your taxes to be the lowest legally required.  If that result ends up with a balance owing to the IRS and/or State, they will accept installment payments (with interest added) until you are paid in full.  The absolute worst thing to do is not file an income tax return because you don’t have the money to pay. 

Your email doesn’t say in which year you sold the property; so I don’t know whether this tax issue is a current one (sale in 2005 or earlier) or a future one (2006) that you will have plenty of time to prepare for since 2006 taxes aren’t due until April 16, 2007

I wish I could be of more assistance; but I wish you the best of luck.  

Kerry Kerstetter

 

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