I am receiving land as part of an inheritance. I am planning on
selling the properties ASAP and will realize a gain of aprox. $700,000
over my basis ( my basis is set by the appraisals done by the probate
referees in the counties where the properties are located. How will my
gain be taxed, as income, as capital gains, can I do 1031 exchanges

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Clarification of Question by jmanly-ga on 06 Apr 2005 19:20 PDT

I live in Arizona and will be purchasing properties in AZ. The
properties I am inheriting and selling are in CA

Rent, interest, or dividends resulting from your ownership of the
property will be taxed as ordinary income.  Any gain on your sale
above your cost basis will be treated as a long-term capital gain, no
matter how long you have owned the property.  Usually, you will not
include the inheritance of the property in your income when you file
your taxes.

Some facts about basis:

"But when you inherit property, your basis is most likely the fair
market value, or what you could have sold it for on the date that your
benefactor died.

If your benefactor left more than a million dollars worth of assets,
the estate must file a federal estate tax return, and in that case the
property may have been valued on a different date. Figure the fair
market value on that day. Tip: The executor or personal representative
handling the estate can help you determine the fair market value."

"FAQ on Taxes & Inheriting Property" TurboTax
http://www.turbotax.com/articles/FAQonTaxesandInheritingProperty.html

Some facts about 1031 Exchanges:

"QUALIFIED PROPERTIES

The classification of properties exchanged determines if the property
qualifies for Section 1031 treatment.

A. The IRS's 4 classifications of Real Estate:

Property held for personal use. (Personal Property) 
Property held primarily for sale. (Dealer Property) 
Property held for productive use in a trade or business. (Business Property) 
Property held for investment. (Investment Property) 

The last two qualify for Section 1031 tax deferral, the first two do
not. Both the property received and the property sold must be of "Like
Kind". It is your use of the property that determines its
classification. What the other party does with the property does not
affect your tax status."

"What qualifies for a 1031 Exchange?"  RealtyExchangers (2002)
http://www.realtyexchangers.com/whatqualifies.shtml

Sincerely,

Wonko

Your "basis" is the market value when the property is inherited.  If
you sell immediately after the property is inherited that should be
very, very, close to the market value you inherited it at.  Since
there is so much money involved you really need to get the in person
advice of a real estate/tax professional so you execute the sale and
purchase of property to minimize your tax liability.

The basis is not the market value, it is the appraised value as set by
the county probate referee. The appraisals are coming in very low
compared to actual market value which is good as we are able to take
more assets out with no estate or gift taxes and stay within my
fathers 1.5 million lifetime exclusion. I will be consulting an expert
but wanted a second opinion