Can I defer capital gains on a vacation rental I sold on 12/20 to another vacation rental I bought in 4/20 using like kind exchange?

[erikhedberg]

I bought a vacation rental on 4/20.  However, it was un-inhabitable and I was not able to put it into service until 12/20.  That same month (12/20), I sold a vacation rental.  We were planning to sell that vacation rental back in May of 2020.  However, I was under contractual agreement until 9/20.  House went on the market 9/20 and we closed 12/20.  These are definitely like-kind  properties.  Please advise  what I need to do to defer capital gains to a property I bought in 4/20 from a like kind property I sold in 12/20

[Anonymous_ · Accepted solution]

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@erikhedberg wrote:
.....Please advise  what I need to do to defer capital gains to a property I bought in 4/20 from a like kind property I sold in 12/20

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In short, it is simply too late for this transaction to qualify for like-kind (1031) exchange treatment; 1031 exchanges need to be planned well in advance of the actual exchange and there are time limits.

Primarily, taking control (actual or constructive) of cash or other proceeds before the exchange disqualifies the entire transaction from like-kind exchange treatment and makes all gain immediately taxable.

See https://www.irs.gov/pub/irs-news/fs-08-18.pdf

See also https://www.irs.gov/pub/irs-drop/rp-08-16.pdf

[Mike9241]

if and when you sell the current rental and there will  be a gain you want to defer, consult a real estate lawyer well before the sale. there are many hoops you have to jump through for the gain on sale to qualify for deferral. miss just one and the sale becomes taxable.