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.

Timing, 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.

Timing, Part 4

Quickly, here's some of the good and bad on 1031 exchanges. As far as limitations, there is a mandatory 45 day identification, and 135 days plus for settlement. That starts as soon as you get rid of your initial property, and it's a hard and fast rule.

On the other hand, you can write a contract anytime before settlement for a replacement property. That means if you handle this correctly, you'll be ahead of the game when it's necessary. However, if you waffle around, you're likely to get in trouble.

A 1031 real estate exchange deal relies on multiple stakeholders. It requires a detailed process. Having good professional assistance is key.

Question 1:
How long do we have to turn around our sale money so as not to pay taxes. I am unable to talk on the phone\nI have no voice due to cancer. Please e-mail me.

Answer:
The replacement property must be held for two years. The property needs to be viably utilized during the two years — as in rented or trying to rent or fixing up to rent. That’s the necessaries. On your tax return you need to fill out Form 8824.

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

Want a registered representative with a series 7 license and knowledge of reg D of the security act of 1933? Marilee Hill provides exceptional free advice on 1031 exchange deals as a former real estate broker with 20 years in the industry. She knows about the people side of the business as well as the timeline, IRS regulations and relevant technical details. Come to Marilee Hill to help you with an existing 1031exchange plan when you have to get all your ducks in a row before you head toward settlement.

Timing, 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.

Timing, Part 3

A 1031 exchange isn't usually simple. There's a lot of learning and planning involved. You have a 45 day identification period for listing properties. There are an additional 135 day settlement time. Real estate is real estate and the 45 days is critical — if your identified properties all disappear you have no exchange. Preferably, identify and settle during the 45 days. That’s just some of the timeline rules and the IRS has mandated many other time relevant regulations for 1031 deals.

Yes, the IRS extended its 45 day identification period for events such as 9/11 and major stormdamage on the East Coast – but in general, these rules are pretty ironclad, so it pays to not mess around when you're trying to achieve a 1031 exchange deal.

However, there is some wiggle room in terms of writing a contract. Essentially, you can write a contract anytime before settlement on a replacement property in a 1031 exchange.

One of the key pieces is collaboration – you'll have to work with sponsors and other stakeholders to make the deal work.

Question 1:
Sean with house ready to sell $139,000. Tammy many rental houses wants to buy it. has one rental house for sell $84,000. Sean wants money now but doesn't Tammy have to sell hers first to meet the 45 day rule. Tammy will have to give additional $55,000 in cash so does boot disallow 1031 exchange?

Answer:
This sort of convoluted program isn't likely to happen. There is a reverse exchange — given the expense of a reverse exchange it doesn't sound like this is going to fit into that classification.

Question 2:
All cash offer in Escrow, need a 1031 exchange trust to receive and hold cash paid for beach property sold, need time to look for beach property in Cambria or Shell Beach CA. G.T.

Answer:
So after closing escrow, you have a 45 day period to identify properties. It's important to have financing lined up and be ready to move quickly when escrow is closed. Sometimes you can try to delay closing escrow, but it's best to have all your ducks in a row.

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.

Timing, Part 2

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 2

A successful 1031 exchange requires quite a lot of learning and planning. There’s a mandatory prerequisite 45 day identification period and additional 135 day settlement time with the clock starting to tick the day you relinquish your property. These are just some of the hard and fast rules that parties must follow to stay on the good side of the IRS.

The timelines are inscribed in granite — and then after the horrific events of 9/11, the IRS issued a nationwide exception extending the 45 day identification rule and the settlement deadline for the entire United States. Since then, the IRS has expanded its exceptions for major natural disasters. Don’t dawdle.

Even with keeping track of compliance with mandatory timelines, the good news is you can write a contract any time before settlement for your replacement property. Sponsors have to consider timing issues for replacement property settlements. So get in line quickly.

Looking for guidance on when to file your tax return for your sale property, or advice on complex property deals? A 1031 exchange often involves more than one stakeholder as it moves toward completion, so having the right partners in your corner is a big plus.

Question 1:
Can I buy the new property before I sell and close on the (old) exchange property.

Answer:

Yes, you can – this kind of deal is called a reverse exchange; it’s complicated, and fees start at around $5,000. You’ll need a Qualified Intermediary who Is also an EAT to accomplish the reverse exchange.

Question 2:
Advise timing to complete a 1031 agreement

Answer:
Planning is of utmost importance for a successful 1031 exchange, and a Qualified Intermediary agreement is essential . The QI agreement is a standard that helps to legitimize a deal. The best time to hire a QI is when you have a valid contract for the property you are selling.

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

Marilee Hill has a good deal of experience in facilitating successful 1031 deals. As a broker licensed in multiple states, Hill has presided over a high volume of property exchanges and other real estate transactions, with a track record of establishing a high rate of success for clients.

As a broker with general securities (Series 7) license from FINRA and other key credentials and a background in real estate, Hill can help to bring clients through complex and sophisticated deals, such as deals involving more than one parcel, or TICs, or advanced real estate trading situations.

Ask Marilee Hill about what you can do with a 1031 exchange in today’s market.