Articles
Exchange Basics, Part 10
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchange Basics, Part 10
Take a look at today’s market, and you’ll see that it differs quite a bit from the traditional real estate world that existed decades ago. Nowadays, things are complicated, and 1031 exchange strategies are one of those things.
Since the main goal is to save money on taxes, part of understanding the 1031 exchange involves knowing the tax code and what’s possible according to IRS rules and regulations. That means understanding the principle of like kind for properties, timelines and more.
When you’re looking forward to successfully completing a legitimate 1031 real estate exchange, a qualified intermediary is a must. That’s another aspect of doing these sometimes complicated real estate deals.
Question:
My wife and I have owned 8 residential properties in Chesterfield county for many years, most of which are now free and clear. We are interested in exploring the possibility of doing some exchanges to relieve ourselves from the landlord concerns while avoiding taxes, etc. \n
Answer:
With eight residential properties, you can sell them one at a time as the tenants depart, and do eight or more exchanges, theoretically up to 24 using the straightforward three property identification rule. As with the DST, you can exchange into multiple asset classes anywhere in the U. S. where you can easily achieve diversification. The old adage “Don’t put all your eggs in one basket” still holds here, and before you first place a property for sale, learn the rules governing an exchange and the structure of the DST. The DST’s two most salient features are the need for a sponsor as the decision maker, and the designation of all debt as non-recourse.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Coming into the real estate business with experience in property management and leasing, Marilee Hill has been actively advising dealmakers on 1031 exchanges for years. As a FINRA certified real estate professional, she is knowledgeable in series 7 licensing and everything else that goes along with these sorts of real estate deals. When you need great information about qualifying intermediaries or anything else, come to Marilee Hill and let her help you to start the process and get all of your ducks in a row.
Failed Exchanges & The Role of the Qualified Intermediary
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Failed Exchanges and The Role of the Qualified Intermediary
Question:
Just sold an investment property. Looking to learn more on 1031 program
Answer:
If you did not hire a Qualified Intermediary, and sign the paperwork, and the QI’s paperwork work was at settlement, you have constructive receipt of the proceeds, and you cannot do an exchange. Unfortunately, your first lesson is expensive.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill knows about 1031 exchange processes – as a 20 year real estate professional, she is able to help offer clients advice on exchange replacement properties and regulations such as reg D of the Security Exchange Act of 1933.
Marilee Hill is a registered representative with a series 7 license who can help with the preliminary work of understanding what to do with a 1031 exchange deal. Then there’s a qualified intermediary service that generally charges $600-$1000 or more to help achieve the deal. Marilee Hill’s services, on the other hand, are free.
Like Kind Exchange – Asset Class, Part 4
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Like Kind Exchange – Asset Class, Part 4
Many people who are hearing about a 1031 exchange for the first time wonder about what “like kind property” means. It generally refers to two different properties that are a similar type of property. But it sometimes gets pretty complicated.
For instance, before a revenue ruling in 1991, a particular client paid a real estate attorney over $100,000 in research costs and representation to declare a particular property “like kind”. After the IRS 1992 ruling defining “like kind” as exchange of real property held for productive use in a trade or business or for investment. After that broad definition, the revenue ruling meant that clients no longer pay those legal fees for determining like kind. Most CPAs are now knowledgeable.
Anyway, like kind is critically important to a 1031 exchange deal.
Question:
Can you do a 1031 from a commercial building to duplex and single homes to use as income.\n
Answer:
Yes, you can sell a commercial property and buy residential property. The tax-deferred exchange was first legislated in1921, and like many new ideas, the concept has evolved in ways that may not have been contemplated at its inception. In 1991, there was the creation of the safe harbor role of the Qualified Intermediary.
The 1991 law enabled what we now know as the ‘standard delayed three party swap.’ In 1992, the IRS clarified “like kind” to be assets held in a trade or business, or for investment; assets do not have to be of the same functional type (e.g. a residential property does not have to be exchanged for another residential property).
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill knows about 1031 exchange processes – as a 20 year real estate professional, she is able to help offer clients advice on exchange replacement properties and regulations such as reg D of the Security Exchange Act of 1933.
Marilee Hill is a registered representative with a series 7 license who can help with the preliminary work of understanding what to do with a 1031 exchange deal. Then there’s a qualified intermediary service that generally charges $600-$1000 or more to help achieve the deal. Marilee Hill’s services, on the other hand, are free.
Exchanging into Multiple Properties, Part 4
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchanging into Multiple Properties, Part 4
Exchangers can bundle properties into one lot, observing the closing date of the first property closed as the beginning of an ID period.
However, other rules apply – how the properties are titled, what the timeline is plus the debt to cash ratio all need to be understood before a sale. In selling a property and buying multiple properties, or selling multiple properties to buy one property exchangers have to be able to consolidate the timeline, add up and maintain the debt to cash ratios and make certain all the entities together can do an exchange.
Question:
I would like to exchange land that I’m selling for several small houses. the houses will not be actually built for six months after the exchange. If I purchase the houses on spec from the builder, does this qualify as a 1031 exchange under the IRS rules?
Answer:
You want to exchange land for several small houses built on spec by a builder, and to settle on the spec houses when finished? You can exchange from land to houses and you can buy more than one property with the proceeds from a single sale. However, if you cannot settle on the houses within six months of your sale property, you’re going to run into serious problems. Contemplate the right time frame here.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill knows about 1031 exchange processes – as a 20 year real estate professional, she is able to help offer clients advice on exchange replacement properties and regulations such as reg D of the Security Exchange Act of 1933.
Marilee Hill is a registered representative with a series 7 license who can help with the preliminary work of understanding what to do with a 1031 exchange deal. Then there’s a qualified intermediary service that generally charges $600-$1000 or more to help achieve the deal. Marilee Hill’s services, on the other hand, are free.
Related Exchanges and Boot, Part 1
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Related Exchanges and Boot, Part 1
Question:
Hello, \n\nWe are selling a 4 plex ($1.36 million) which we did not live in and buying a triplex (equal sq footage per apt ) (1.85 million) which we will live in one and rent the other two.\nWe were told we would have to buy something more expensive so we would not have to pay taxes on the 4 plex.\n
Answer:
You’ll need to determine the square footage of the unit you want to live in, and what percentage of the three units your new home unit represents, by square footage. Based on these percentages, the price of the two units you are renting need to be $1.36 million. If they are not, you will owe taxes on the difference, i.e. two units are worth $1.1M, so taxable is $260,000.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
With a wealth of experience in real estate and 1031 exchanges, Marilee helps people to deal with a complex real estate process. Her long experience with her own properties and having real estate broker licenses in three jurisdictions help.
Marilee likes helping clients to understand the ins and outs of a real estate deal. With her combined more than 20 years as a commercial real estate Broker plus another 20 years with FINRA licenses Marilee has the experience to help clients to plan adequately for a real estate future. Let Marilee help you with a real estate portfolio that needs a guiding strategy in terms of tax regulations and more.
Exchanging Multiple Properties, Part 3
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchanging Multiple Properties, Part 3
Exchangers can bundle properties into one lot, observing the closing date of the first property closed as the beginning of an ID period.
However, other rules apply – how the properties are titled, what the timeline is plus the debt to cash ratio all need to be understood before a sale. In selling a property and buying multiple properties, or selling multiple properties to buy one property exchangers have to be able to consolidate the timeline, add up and maintain the debt to cash ratios and make certain all the entities together can do an exchange.
Question:
Do you have to set up an exchange before you sell a property? I plan to sell 1 or 2 and plan to buy 1 does the 1031 need to be set up first? Thx Steve.
Answer:
So you want to sell two properties, and buy a single property with the proceeds? You need to hire a Qualified Intermediary, and the QI’s paperwork must be at the title company before you settle on your first sale property.
You have 45 days from settlement to identify up to three properties. So you must sell your second sale property within the first property’s 45-day identification time frame, to be able to use funds from two sales to buy one property. There are an additional 135 days from the settlement of the first property to settle on your selected purchase. When you are doing a 1031 exchange, there is no restriction on when you can sign the contract for your exchange purchase property. What you want to do involves a lot of planning, and a little luck.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
With a wealth of experience in real estate and 1031 exchanges, Marilee helps people to deal with a complex real estate process. Her long experience with her own properties and having real estate broker licenses in three jurisdictions help.
Marilee likes helping clients to understand the ins and outs of a real estate deal. With her combined more than 20 years as a commercial real estate Broker plus another 20 years with FINRA licenses Marilee has the experience to help clients to plan adequately for a real estate future. Let Marilee help you with a real estate portfolio that needs a guiding strategy in terms of tax regulations and more.
Like Kind Exchange – Zero Cash Flow Asset, Part 1
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Like Kind Exchange – Zero Cash Flow Asset, Part 1
Question:
I’m a commercial r.e.broker. My client is looking at a Zero Cash Flow (ZCF) purchase with pay down/readvance for his 1031. His accountant asks for an opinion letter on this scenario. Can you help?
Answer:
You have no need for an opinion. A 1031 is a 1031, and the 1031 exchange process is well established. What you need is an explanation of why an investor invests in a Zero Cash Flow property, and how the property functions over time to enable the investor to lower Zero Cash Flow’s debt to a level where the investor can do a 1031 into a cash flow property.
Zero Cash Flow is an investment into which one places cash. Then the investor acquires debt leverage of 80% or greater. The property produces no income, and has a loan that amortizes in a pretty standard way.
The purpose of the ZCF is to acquire the debt, so that the 1031 exchange investor can acquire a property with a lower debt leverage ratio. The plan is for the Zero Cash Flow property to build enough equity or “amortize” in ten years, to the point that when the property is sold, on its own or combined with the sale of another less leveraged property, the investor can purchase a potential cash flow property.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
For free advice on 1031 exchanges, contact Marilee Hill. She has 20 years experience in the business as a real estate broker and property manager, and she understands DST requirements and the security act and everything else as it applies to 1031 exchanges. She’ll point you toward the right resources, for example, a qualified intermediary, and estimate cost and likely outcomes.
Related Persons Exchanges/Self-Dealing Exchanges and Mortgages, Part 5
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Related Persons Exchanges/Self-Dealing Exchanges and Mortgages, Part 5
Some people have some blinders on when they start considering a 1031 exchange. One way you could think about it is that they suffer from cognitive dissonance – they’re not really able to square the facts with what they think they should be able to do.
One limiting rule involves related person exchanges. You can’t have a relative be involved in most 1031 deals. It just doesn’t work out. If you do go this route the relative can not also do an exchange with the funds he receives from the sale of his property from your exchange. After that, to have a valid exchange you, the exchanger, must keep the property for two years before you can do another exchange. IRA does not want families to manipulate their basis.
Question:
I want to remove myself from the title of a California property I purchased jointly with a relative using a 1031 exchange after selling my Florida property. Can you please advise me on this matter?
Answer:
You have no need for an opinion. A 1031 is a 1031, and the 1031 exchange process is well established. What you need is an explanation of why an investor invests in a Zero Cash Flow property, and how the property functions over time to enable the investor to lower Zero Cash Flow’s debt to a level where the investor can do a 1031 into a cash flow property.
You purchased a property though a 1031, jointly with a relative? Regardless of who that relative may be, how you remove yourself depends on how you and your relative hold joint title. If you both own a stated percentage, and both of your personal names are on the title, the paperwork is simple, and cost varies by jurisdiction. However, you’ll need a contract between you and your relative to clarify everything. If you intend to do another 1031 exchange, you’ll also need a professional Qualified Intermediary to hold the funds that you receive from your relative.
On the other hand, if the property is held in an entity such as an LLC, you cannot do an exchange unless you first distribute your interests into separate LLCs. Then you can sell and pay your taxes, or you can wait two years, sell, and after the end of those two years, execute a 1031 exchange without tax liability.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
For free advice on 1031 exchanges, contact Marilee Hill. She has 20 years experience in the business as a real estate broker and property manager, and she understands DST requirements and the security act and everything else as it applies to 1031 exchanges. She’ll point you toward the right resources, for example, a qualified intermediary, and estimate cost and likely outcomes.
Turning a 1031 Exchange into a Private Residence, Part 4
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Turning a 1031 Exchange into a Private Residence, Part 4
Question:
I’ve recently sold four building lots in Florida as we were planning to build there. I would like to use the proceeds to buy a home in Arizona. I’d prefer to NOT pay taxes on the gain as I’m using this for a new home. Is this possible? Regards, David.
Answer:
There are several issues here. First, you said you’ve recently sold: unless you hired a Qualified Intermediary and his or her papers were available at settlement, you cannot do a 1031 exchange, because you have constructive receipt of the proceeds. If this were not the case, you would still have problems exchanging into a dwelling into which you were going to live. You can buy a house with an exchange and rent the house for two full years, and then move in and not pay your capital gains.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
When you’re going to do a 1031 exchange deal, there are lots of things to consider – with a securitized property you need a licensed FINRA professional with either a Series 22 or Series 7 license, and your professional needs to understand how to work with the multiple stakeholders involved in the business. You also need to know about the crucial role of a qualified intermediary. Marilee Hill, with 20 years experience in the business, provides this free advice to clients to help them get started rolling the ball up the hill for a 1031 exchange deal.
Reverse Exchange, Part 1
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Reverse Exchange, Part 1
Question:
Can we do a 1031 exchange if we buy a property first, THEN sell the like property? I have a closing date for my purchase, but not yet for my sale.
Answer:
Yes, you can. To do a 1031 exchange in this situation, you need a Qualified Intermediary who is also an EAT (Exchange Accommodation Titleholder) to handle your reverse 1031 exchange process.
One thing to know is that you’ll need to be able to self-finance any loans. The paperwork is significant, and most EAT’s fees start at around $5,000. That makes this option highly impractical for some property owners, but comes in handy you have a good reason to go that route, and you’re able to swing it financially.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill has particular experience with the nuts and bolts of a 1031 exchange deal as a licensed FINRA professional. Time and experience in this field translates into key support for customers and knowledge of the people side of the business, which is also important. Get free advice for a 1031 exchange deal and consulting on how to hire a qualified intermediary and more.
Exchange Basics, Part 9
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchange Basics, Part 9
Okay, so today’s market is different from what you experienced in the old days – today’s real estate investors have many options in addition to cash-only deals, and they also have the ability to structure deals in many different ways.
The 1031 exchange is one of those principles that is based on saving tax money, and that means it has to be looked at very thoroughly in terms of implementation. Investors need to know about like kind properties and necessary timelines, etc. They need to understand how each stakeholder party is treated by the IRS.
In order to help the real estate investor through this process, it’s important to hire a qualified intermediary. That helps to ensure that the deal is based on solid ground and that every T will be crossed, and every “I” dotted.
Question 1:
Currently own Restaurant (building / land)that is leased to daughter would like to sell to her or some one else. the original investment was 1.9 m capital gain is est at approx450.000 How much do I need to invest in a different & what kind of building
Answer:
So here, your real estate is held for productive use and qualifies for a 1031 Exchange. The restaurant has a lease and and the lease is not part of the sale; the lease encumbers the building. Essentially, you will need to exchange for an amount equal to or greater than the original investment plus your profit.
If any financing was in the purchase or there is now financing you need to secure financing to replace that amount or you can replace it with cash. Too many think that when the debt is paid off at settlement —-no ned to replace it — WRONG.
Question 2:
My husband is in the process of selling his land. Also in the process of buying from the County, land that once was leased to us. Could this possibly be a 1031 exchange? The only thing is that there is a cabin on the land that is being purchased that we own! Please help! Thank You!
Answer:
This deal can qualify for a1031 exchange under the right conditions.That the land was once owned by you is irrelevant to the exchange. You cannot include in the sale the cabin — you already own it — so have the documents reflect that the cabin is not part of the sale. A good attorney familiar with 1031 exchanges can easily create the correct documents — starting with the contract.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
As a knowledgeable real estate professional with FINRA certification, Marilee Hill has a track record of advising clients on 1031 exchange deals and similar real estate transactions. She also understands the people side of the business which is important in dealing with stakeholders and helping them to understand the process of IRS rules and regulations. Let Marilee Hill help to advise you on a QI and everything else that’s so important in these deals.
Exchanges with Partnerships, LLC’s and other Entities, Part 5
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchanges with Partnerships, LLC’s and other Entities, Part 5
Any 1031 exchange deal has its own complexity, and trying to approach one of these exchanges with an LLC or partnership can make things even more complicated.
There are rules and regulations for LLCs and partnerships that aren’t in place with individual-based deals. Some of these have to do with how stakeholders in an entity distribute assets – with this strategy you need to plan ahead as there is a two-year time frame. Then there are rules around partners buying each other out that is sometimes called a “drop and swap” approach, where many states allow this process, but it’s illegal in California.
Basically, the 1031 exchange has evolved over time, and it’s been subject to additional oversight, but it’s also had dealmakers working to put together more sophisticated ways of working with the rules inside the system to make a 1031 exchange successful.
Question 1:
If I sell a commercial property can I exchange into a REIT ?
Answer:
No kinds of property can be exchanged into a real estate investment trust. This process just doesn’t interface with that kind of asset.
There is an IRS 721 Up REIT rule requiring you to sell the whole property to the REIT. If the REIT ever sells your property out from the REIT you will pay all your taxes.
Question 2:
I am planning to sell an individually owned rental home. Can I Starker exchange into another rental purchase with another investor under an LLC? or do we need to show my name as an “individual” on the title to comply with 1031 rules?\n Do you provide 1031 services in Florida?\n\n
Answer:
In order to comply with rules on 1031 exchanges, your name has to be on the title of the rental property. Your proposed partner can do a joint title, he with an LLC and your entity titled the same as in the property you sold.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill has particular experience with the nuts and bolts of a 1031 exchange deal as a licensed FINRA professional. Time and experience in this field translates into key support for customers and knowledge of the people side of the business, which is also important. Get free advice for a 1031 exchange deal and consulting on how to hire a qualified intermediary and more.
Timing, Part 5
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Timing, Part 5
When you’re trying to set up a successful 1031 exchange deal, there’s some particular research that has to be done. There’s also a timeline where you have a 45 day identification time frame and settlement time of an additional 135 days.
The IRS is very strict about the timeline. However for 9/11 and some natural disasters IRS has granted settlement deadline extensions. That’s not business as usual, though, so it pays to plan ahead.
Here’s the thing – as a dealmaker, you can write a contract anytime before settlement for replacement property. Set this up correctly and you’re likely to have smooth sailing for a 1031 exchange deal.
With that said, you might have more than one partner or stakeholder in the process, so look for information on how to utilize a qualified intermediary and move successfully toward completing your 1031 exchange.
Question 1:
Hi! I have a couple questions. I have 2 single family rentals in Denver Colorado. 1) Can I exchange the TWO of them TOGETHER for ONE rental in California (since property there is so much more expensive). 2) can the rental in California be a condo or must it also be a single family residence? Susan
Answer:
You can combine two properties and do one exchange following the time lines determined by when the first property settles. The California property can be a condo or a single home or a funeral home! The definition of like-kind was expanded in1992 to be “real property if properly held for use in a trade or business or for investment purposes”.
Question 2:
Is there any rule that owner must hold the title of the property that is acquired by 1031 exchange for certain period of time? Or Can I sell the subject property right after the 1031 exchange is completed?
Answer:
First, there’s a two year rule that is generally excepted as the safe time frame for holding a property for exchange. The two years prevents flipping, which is not allowed under IRS rules.
Then there is intent which needs to deviate from the rule needs to be documented. Suppose you are in the real estate business. You set up two LLCs for specific purposes, one for flipping property and one for holding property. You purchase two houses you want to hold and place the houses into your “holding” LLC. You proceed to hire an architect and he draws up plans. The houses are not listed for sale. You receive an offer you cannot reuse. With your separate LLC’s, architect bill and his plans plus lack of marketing material your intentions are well documented! You can take the offer and do a 1031 exchange.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
When you need advice on a 1031exchange deal, come to Marilee Hill – as a FINRA certified registered representative with the series 7 licensing, Hill has advised many clients on how to put together a 1031 exchange deal. Since Hill is not a qualified intermediary, she doesn’t charge for services. Hill will direct you to a qualified intermediary who will probably charge from $600 to $1000.
However, this is a small amount compared to your potential tax savings from a 1031 exchange. Ask Marilee Hill about her experience in 1031 exchange deals.
The Role of the QI (Qualified Intermediary), Part 4
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
The Role of the QI (Qualified Intermediary), Part 4
Looking to do a 1031 exchange deal? A qualified intermediary is critically important. Without the qualified intermediary, the deal won’t work. You’ll end up without a successful result.
But there’s another wrinkle here, too. Your qualified intermediary has to be free of any conflict of interest. You should not use a family member or your personal attorney or someone else like that to be your QI. That’s a recipe for disaster. You can find out more in specific Treasury regulations regarding the subject.
Question 1:
Questions: \nConsidering selling rental home in California and buying a condo in Naples for $1,500,000.\n1. How to obtain maximum security with escrow account?\n2. Does exchange have to be completed in tax year?\n3. Do all potential properties have to be identified before close?\n
Answer:
A qualified intermediary will help you to get maximum security for your exchange funds. Ask if the Q.I. is bonded? All potential properties have to be identified within 45 days of close. When you close on all properties before 45 days you have no need to file the ID’s. If for whatever reason you are unable to purchase any property identified — you pay Uncle Sam the taxes.
If your exchange window goes into the following tax year — you need to get an extension and file your taxes after you close your 1031 exchange.
Question 2:
can you email me a form to use to designate a replacement property.
Answer:
Your QI can help you with forms, but if you do not have a qualified intermediary, you do not have a deal. If you have gone to settlement and have constructive receipt of the funds, you have lost your ability to do an exchange. Get the necessary paperwork from your QI before you go to settlement and file with the QI the properties you want to purchase by the end of the 45 day identification period.
Question 3:
I need to set up a 1031 excvhange
Answer:
I can provide you with contact to a qualified intermediary who I trust and have used for many years. They will help you to complete the deal.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill has a lot of experience with 1031 deals and understands the people side of the business too. She does not charge for her advice, but does not act as a qualified intermediary herself. Ms. Hill is a registered representative with series 7 licensing and experience searching for and evaluating securitized replacement properties. Ask Ms. Hill about costs for QI services and how to go about a 1031 exchange deal.
Exchange Basics, Part 8
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchange Basics, Part 8
Take a look at today’s market, and you’ll see that it differs quite a bit from the traditional real estate world that existed decades ago. Nowadays, things are complicated, and 1031 exchange strategies are one of those things.
Since the main goal is to save money on taxes, part of understanding the 1031 exchange involves knowing the tax code and what’s possible according to IRS rules and regulations. That means understanding the principle of like kind for properties, timelines and more.
When you’re looking forward to successfully completing a legitimate 1031 real estate exchange, a qualified intermediary is a must. That’s another aspect of doing these sometimes complicated real estate deals.
Question 1:
After 2 holders of property, 25% holder, 75% holder, complete 1031 exchange and new property purchase, can all the income go to the 25% holder without any tax problem for the 75% holder who has no income to report? Does IRS require income reporting from both tenants in common?
Answer:
This is an interesting question based on the “tenant in common” principle of “pari-passu” or “equal footing” – where you have two partners in the deal, the IRS holds them to be, in its own words, “equally managed without any display of preference” … so what that means is you still have to file, even if a specific party doesn’t have to pay in the end. IRS wants to see the numbers!
Question 2:
I am selling a prop. for 775,000 on land contract.300,000 down. balloon in 3years. Want to buy another rental property for 300,000 cash. Will the 1031 work for the 300,000 to be shielded from the gain? I bought the property, a MHP with a 1031 9 years ago. The new property is consisting of 9 homes.
Answer:
Where you have situations like this with a balloon payment, it’s necessary to structure the deal properly. The land contract is also a moving piece here. The 9 homes to be purchased qualify under the 95% 1031 I.D. rule. Your best bet is to hire a qualified intermediary to help you through the transaction.
Before any commitment check with a CPA with 1031 experience to see what the tax would be on the $300,000 exchanged. From my experience you are disproportionally penalized when the amount exchanged is less than half the sale price. .
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill has advised many clients on 1031 exchange deals. As a FINRA certified real estate professional with knowledge in series 7 licensing and more, Marilee Hill can help advise on some of the tricky aspects of a 1031 real estate exchange deal. Get great advice from a friendly, established voice in the real estate business – and help with your next 1031 exchange deal.
Exchange Basics, Part 7
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchange Basics, Part 7
When you go to start a 1031 exchange, you’re essentially trying to save yourself money in taxes. That’s the bottom-line goal, but many people pursuing these deals can run into challenges along the way. Today’s landscape is more complex, and today’s rule making is more robust. The IRS has specific rules and regulations for like kind and everything else involved in a 1031 exchange.
So you want to save on taxes – but you have to know what’s involved in these deals. It’s not as simple as finding any property and doing any exchange. The like kind requirements are fairly strict. If the person doing the exchange doesn’t understand them, they’re likely to be unsuccessful in doing the deal without getting in some kind of trouble with regard to filing.
Knowing about how to do legitimate 1031 exchange deals and about the role of qualified intermediaries helps real estate holders to know how to do these valuable deals, to make sure they are in good shape when the paperwork goes through.
Question 1:
I am planning to do 1031 exchange as follows:\nselling property #1 for 625,000\nLoan balance $65,000\nsale expanses about $40,000\n\nBuying Property #2 for $610,000\nadding cash for the difference between sold and purchased prices.\n\nDo I have to pay taxes on the price difference $15,000 ( Boot ??? )
Answer:
So if you have a 625K loan balance and those expenses, and you’re buying for 610K, your second property will be greater in value than your net sale, which is good. You’ll have to exchange your net sales proceeds (625-65 = 540) you put all of the 540K into your second property, and if you take any out, you have to pay taxes on it. Other than that, you’re in good shape, because your second investment is greater.
Question 2:
Selling a property that is going to be approximately $89,000 in capital gains.
Answer:
As mentioned above, in a 1031 exchange deal, you have to buy an equal or greater amount of real estate. That’s equal or greater in terms of net sale price after sale expenses. Net sale price equals DEBT + CASH + PROFIT. Your $89,000 needs to add any debt you paid off plus all additional cash.
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Marilee Hill can help real estate holders to get great advice on 1031 exchange deals – as a FINRA certified professional with experience in all sides of the real estate industry, she understands how to advise clients on how to start looking for qualified intermediaries, identifying like kind properties and all the rest. She also understands the people side of the business, and her goal is to help clients to be successful in the real estate world.
Exchange Basics, Part 6
The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
Exchange Basics, Part 6
When you look at how things used to be done in the old days, real estate today is much more complicated in many ways. There are more types of ways to get involved with real estate, and more diverse deal opportunities. The 1031 exchange strategy is part of this – so are TIC and DST exchange deals.
The essence of a 1031 exchange deal is that you save money on taxes – but that’s easier said than done. Without the right kinds of strategy and compliance, people who set out to do 1031 exchanges can run into serious roadblocks. Some of these have to do with like kind property requirements – when you run afoul of these, you tend to get in trouble with the IRS. In exchange properties simply have to be of like kind as defined by the jurisdiction; for example in NYC a coop can be exchanged, in Texas Mineral rights an be exchanged and in West Virginia timber rights can be exchanged.
Those who are contemplating a 1031 exchange deal should know all of the requirements and make sure they comply, including using a qualified intermediary, conforming to time frame requirements, and making sure properties in question are like kind.
Question 1:
I co-own a property with a partner and like them to buy me out and invest the proceeds into another property. Can I use at 1031 exchange to purchase another property. Also, would the value of the property that I purchase need to be only more than my half of the former property value or entire?
Answer:
If your names are on the title and not some generic business entity, you can take the proceeds from the deal to exchange into another property. Make sure that the second property is of equal or greater value than the initial property that you bought from your partner, i.e. if there is $30,000 of debt and $100,000 of cash you need to replace $130,000 of which $100,000 must be cash. All $130,000 can be cash.
Question 2:
Is 1031 exchange rule applies to business opportunity ? L know it’s applies real estate only.\nPlease let me know.\n\nThanks,\n
Answer:
In terms of 1031 exchanges, like kind involves exchanging real property. Effective January 1, 2018, exchanges of machinery, equipment, vehicles, artwork, collectibles, patents and other intellectual property and intangible business assets generally do not qualify for non-recognition of gain or loss as like-kind exchanges
Question 3:
I completed a 1031 Exchange in 1992 and I’m now going to sell the replacement property (vacant land). However, I can’t find my paperwork and I wondered what complications I’m going to face at tax time. I have fairly accurate personal records of the money involved but no official paperwork.
Answer:
You need your old tax records. Contact the IRS and retrieve the 1992 filing. You need formal proof of your cost basis which the 1992 tax return should give you. The expenses during the time you held the property do not affect your basis. With the 1992 information you can calculate the profit. You can then pay taxes or execute another exchange. Either way you need to know you basis!!
About Marilee: Role of Marilee Hill, Registered Representative (RR)
Coming into the real estate business with experience in property management and leasing, Marilee Hill has been actively advising dealmakers on 1031 exchanges for years. As a FINRA certified real estate professional, she is knowledgeable in series 7 licensing and everything else that goes along with these sorts of real estate deals. When you need great information about qualifying intermediaries or anything else, come to Marilee Hill and let her help you to start the process and get all of your ducks in a row.
