Like-Kind Exchange wildlife ranch and home exchanged for smaller ranch and home

[vahaudio]

Hi, it's been years since I've done a like-kind exchange, so my memory is a bit foggy.

My client has a 190 acre ranch with two homes and a barn. Their operation is wildlife management, and they also reside in a home on the property. They sold the property in exchange for a smaller ranch (18 acres with 1 home and a barn). New property was purchased for 885k, prior property was sold for 1.4mil. The original property was inherited years ago, and had 1 small home. The client later built a new home and a new barn. I'm trying to determine what all I can deduct from the property given up.

My confusion lies in the fact that their home is included in this transaction, so when calculating basis, I would include property value at time of inheritance, cost of major improvements, ie: home and barn, less any allowed depreciation and/or loss, correct?  Can I include all settlement charges and commissions paid under 'Exchange Expenses'? Lastly, since the property also included their home, is the home sale exclusion allowed?

Any input is greatly appreciated, thanks!

[BobKamman]

They did do it through an exchange facilitator, right?  Would have been better if they had broken the sale down to two transactions and just exchanged the business part of the proceeds. And maybe try to structure the purchase as two transactions, also.  But it still looks like they traded down, so there would be some taxable gain.  Maybe $1 million for proceeds and $600K for the business part of the new place?  Or are they not living in the new home?

[vahaudio]

Hey Bob, thanks so much for the quick reply!

I'm pretty sure they worked with a facilitator, but I've reached out to verify, though I'm receiving everything pretty late, and haven't had much discussion with the client.

From what I have, it definitely wasn't broken out into two separate transactions. 

You are correct, they are living in the new home, and I'm currently showing a little over 400k in capital gain. By separating out the business portion of the proceeds, I would be able to reduce the capital gain, then I would treat the remainder of the proceeds as a main home sale exclusion, right?

That being said, I wouldn't be able to take the home sale exclusion within the like-kind exchange without the proceeds of the home being separately identified?

[BobKamman]

It's not late at all.  You have five more months. 

I'm still trying to figure out what "wildlife management" is.  Euphemism for a hobby farm?  Or is it where people pay money to come shoot critters?

You need separate basis and proceeds for home sold and business real estate sold. Then you need separate numbers for home bought and business real estate bought.  Was wildlife included in both deals?  You can't do Section 1031 for those anymore.  

[vahaudio]

Yes, it's a hunting and fishing ranch. They offer accommodations and hunts on the property. 

I'm going to work on separating out all proceeds accordingly. 

I know the original ranch is not high fenced, so it's a wildlife natural habitat, I don't believe they purchase and raise any species, so technically there was no exchange of wildlife in the sale.