Exchange Basics, 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.

Exchange Basics, Part 5

How is today's market different from the old days? One aspect of this is that it's much more complicated. With TIC and DST exchange deals and various kinds of 1031 exchange strategies, there are widespread alternatives to doing cash only deals and pursuing traditional tax burden outcomes.

Of course, you want to be saving taxes when you're doing a 1031 exchange, but various roadblocks exist, and they can be pretty daunting. People who don't understand the like kind requirement can get in trouble with a deal that's not going to be fully kosher with the IRS.

Observe all of the requirements for a legitimate 1031 exchange deal, whether that means using a qualified intermediary, observing timeline requirements or keeping properties like kind in terms of domestic or foreign locations.

Question 1:
We have a rental property held in an LLC by me and my wife. We would like to sell this property and possibly acquire some other properties. Is the original capital investment (minus depreciation) liquid IE usable for any purpose? We would then like to place the profit in an exchange.

Answer:
The deal is that you need to exchange debt on the property paid off at settlement and all of the cash including refinancing funds, original equity and profit. Any other kind of exchange isn't going to work.

Question 2:
I have mixed use, commercial property. I live on the property, plus have 3 income buildings on 1.3 acres. There are 2.7 acres - land which I want to sell. My accountant has my property 50-50. IF I sell the land for $200,000 as 1031, will I have to invest $200,000 or $100,000 based on the 50-50?

Answer:
In this case, your investment is $200,000 based on your existing property.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

When you come to Marilee Hill, you get fully qualified advice on 1031 exchange deals for free. Marilee Hill can talk to you about the need for a qualified intermediary and what that means. She's FINRA certified and fully conversant in series 7 licensing and private placement management memorandums and everything else. Let Marilee Hill help you to figure out what to expect with a 1031 exchange.

Related Persons Exchanges/Self-Dealing Exchanges and Mortgages, 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.

Related Persons Exchanges/Self Dealing Exchanges and Mortgages, Part 4

There's this interesting thing that happens when many people approach a 1031 exchange – they start practicing wishful thinking, or in other words, cognitive dissonance.

Maybe they think that the property doesn't have to be like kind, or there's no two-year holding period … or self-dealing is totally fine…

These are all pitfalls to a successful 1031 exchange deal, because these requirements do exist and they are hard and fast rules and the IRS is watching.

You can't just set up loans inside the family and shortcut the process requirements, so it pays to be informed when you start to work on a 1031 exchange deal.

Question 1:
My husband and I married later in life. He has a family trust in which he holds all his property. I have my own family trust in which I hold my own property. Can I sell a rental property in my trust and purchase a rental property from my husbands trust in a 1031 exchange?

Answer:
Because you are married, this is considered self-dealing. If you're divorced, you can do it. It's really that simple

Question 2:
Selling student rental apt. building for %500k. I have appreciated it for 21 years. My CPA tells me I will owe approximately $120k capital gains. I own another rental building which I owe 210k bank mortgage. Will I be able to save any capital gains tax if I apply sale money to mortgage?

Answer:
Unfortunately, this violates the like kind requirement in that a deed of ownership is not comparable to a lien against a 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.