1031 exchange of turnkey rental


B

Bob

We have a vacation rental house in Hawaii that we are
considering doing a 1031 exchange for another vacation
rental. It is customary there for houses to be sold/bought
as turnkey, with all furnishings, dishes, etc. From a tax
perspective, I think the furnishings should be treated as an
additional sale, but logistically that can get a bit
complicated. Furniture is depreciated on different
schedules if bought at separate times. Kitchen items,
barbecue, etc. were simply expensed when purchased. Is it
possible to exchange a furnished house for another furnished
house and consider the entire thing as exchanging like for
like? Or is it possible for tax purposes simply to forget
about the furniture and "give" it to the new buyer? There
must be a simple way to do this.

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L

L K Williams

Bob said:
We have a vacation rental house in Hawaii that we are
considering doing a 1031 exchange for another vacation
rental. It is customary there for houses to be sold/bought
as turnkey, with all furnishings, dishes, etc. From a tax
perspective, I think the furnishings should be treated as an
additional sale, but logistically that can get a bit
complicated. Furniture is depreciated on different
schedules if bought at separate times. Kitchen items,
barbecue, etc. were simply expensed when purchased. Is it
possible to exchange a furnished house for another furnished
house and consider the entire thing as exchanging like for
like? Or is it possible for tax purposes simply to forget
about the furniture and "give" it to the new buyer? There
must be a simple way to do this.
I practiced in Hawaii for many years before moving to
Thailand and I did returns for a number of clients there.
Unless the furniture was treated as a separate asset (and
depreciated over a shorter life) it was always treated as a
unit. If it was depreciated separately, it has to be
accounted for separately but I never excluded it from the
exchange. Likewise, it does not matter if the replacement
property is purchased furnished or unfurnished.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
 
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