Will I owe taxes when I sell this property?

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Q. Which form do I need to use for the sale of a two-family investment property? I plan to buy another property to replace it.
— Investor

A. Congrats on making this move.

More important than what tax form to use — while you want to do it right — the big question is whether the new property will be a “like-kind” property. If it is, assuming you have a significant capital gain, you could benefit by the tax laws.

You can benefit by using what’s called a 1031 exchange, said Kenneth Bagner, a certified public accountant with Sobel and Co. in Livingston.

He said this allows you to transfer your investment property without incurring a taxable gain.

“The gain can be deferred until you sell the new property you purchase, assuming you reinvest all of the proceeds from the sale into the new property,” he said.

Bagner said in order to effectuate a 1031 exchange, you need to find an intermediary to hold the funds on the sale — but it can’t be your accountant or your attorney. Instead, there are specialized companies that handle these situations.

“After the sale of your property, you will need to identify a property within 45 days and close on the property within 180 days in order to receive deferred tax treatment,” he said. “The like-kind exchange is reported on Form 8824 when filing your tax return.”

Note that you cannot do a 1031 exchange for a primary home, only for investment properties.

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This story was originally published on Dec. 16, 2019.

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