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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 ...