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Failed Exchanges, 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.

Failed Exchanges, Part 2

Want to succeed in a 1031 exchange? Planning and research are key.

There are number of core rules to completing a successful 1031 exchange. Avoiding failure means getting the required ID’s and qualified intermediary paperwork for settlement. It also means using the right timeframe and complying with eligibility requirements.

In addition, those who are contemplating a 1031 exchange have to understand ‘like kind,’ a criterion for eligible properties. They have to understand what the qualified intermediary does and why that's important. They need the right legal and tax advice to do the exchange the right way. All of this is a good foundation for completing a 1031 exchange in full accordance with legal requirements.

Question 1:
2 days ago I closed on the sale of rental property thinking I had 180 days to do a 1031 deferred exchange. I didn't realize that I needed an exchange intermediary to facilitate the disposition of relinquished property and acquisition of replacement property. Am I too late to do an exchange?

Answer:
Unfortunately, that type of exchange is not possible – it's best to plan ahead.

Question 2:
I sold a Malibu land 3 mths ago and sold a house 1 mth ago. How long do I have to file 1031 exchange & buying other house to defer tax on my capital gain?

Answer:
In hindsight, without qualified intermediary paperwork at settlement, a 1031 exchange is not possible. We always talk about bringing a QI to the table because then you would have 45 days to identify properties.

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

When you need trusted real estate advice, talk to Marilee Hill. Her experience managing properties and practicing real estate in various jurisdictions has helped her to build a reputation as a knowledgeable professional with expertise in various kinds of real estate deals including 1031 and like kind exchanges.

There's a lot to learn in a 1031 exchange or related deal. But real estate is also about people. Marilee Hill knows how to deal with sponsors and all stakeholders in an exchange deal to make everything run smoothly.

Talk to her about your plan to see if it is viable.

Exiting the 1031 Exchange Chain, Part 2


1031Ex.com, April 2019 – 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.

Exiting the 1031 Exchange Chain, Part 2

There's a strategy I called the retirement exit, and it makes sense for someone who's patient and likes to plan for the long-term. It requires some self-discipline, but if you like deferred gratification and benefiting from long-term financial strategy, it might be right for you.

This strategy involves creating a long-term plan to leave your property for financial gain. Maybe you've been there a long time and started to notice things that you don't really like about where you live – climate, economics or anything else. Want to set sail for sunnier vistas?

With this 1031 exchange strategy, you can move money in real estate transactions without the traditional tax burden associated with selling. Here's how it works – first, you acquire an investment property in addition to your permanent residence. After two years renting out the property, you can move into the investment property and claim it as your new primary residence.

This leads to substantial exclusion gains for property owners.

If done correctly, it's absolutely legal and is a great way to protect your financial resources.

Question 1:
We bought a rental from the money selling a vineyard using 1031. Is there a certain\n\namount of time before we can sell the house and not have to invest? We are in our 80\nand could use the money in the future.

Answer:
A sale requires an exchange to lighten the tax burden – that's the basic bottom line. So if you want to do another swap, you can, if you wait, but if you don't, you have to pay all the taxes.

About Marilee:

Role of Marilee Hill, Registered Representative (RR) Where do you turn for dedicated 1031 exchange advice? Marilee Hill has the experience and knowledge to help. Marilee Hill has practiced real estate in in multiple states and managed properties extensively – for instance, setting up a $12 million apartment property in 1991.

Since then, Marilee Hill has been helping clients to lay the groundwork for 1031 exchanges in a straightforward way. She knows the rules of the road and the rules of the game, but also understands that real estate is a people process, and that a good agent or professional benefits from a friendly and sophisticated approach. Ask Marilee Hill about real estate strategies for 1031 exchanges that will help you stay within the bounds of the law and accomplish your goals the right way.

Exchanging Multiple Properties, 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.

Exchanging Multiple Properties, Part 2

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 1:
Marilee.Party A sells prop.1 to Party B for $2.4M. Party A also sells another prop. for $1.5M net. Party B owns prop. X worth $4.8M with $2.4M assumable debt. Can Party A exchange those 2 properties for prop.X -Pay down $1.5M towards the $2.4M plus cash to pay debt entire debt and qualify? Thank you

Answer:
I think I understand the math - If the two sales by Party A ($3.9M) are all cash, then YES, Party A can purchase the property X worth $4.8M, use her cash to pay down the debt to $900,000 and qualify. The rules are: you cannot take any cash out of settlement. You can substitute cash for debt. You can add debt to your exchange. You need to buy equal or greater ($4.8M is greater than $3.9M). This qualifies every day.

Question 2:
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:
Yes, you can exchange two properties for one, as long as you stay within the 1031 exchange guidelines regarding 45 day identification and 180 day settlement. The rental in California can be any kind of real property such as a Condo.

About Marilee:

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.

Exchanges with Partnerships, LLC’s and other Entities, 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.

Exchanges with Partnerships, LLC’s and other Entities, Part 2

When partnerships, LLCs and other entities get together to do 1031 exchanges, entity exchange rules apply. These rules also tend to change over time. One example is the “drop and swap” – a process where one party in a partnership or LLC buys out another. The greedy state of California no longer permits, yet on the East Coast drop and swaps are a daily occurrence.

For those in a partnership or multiple party LLC the entity can distribute proportionately the assets to individual newly created entities and after a two-year period each upon a sale can go his separate way and avoid large capital gains taxes.

Changes in permitted entities into which one could exchange evolved from 1994 to 2002 when the IRS modified and provided clear guidance for the then common TIC structure. When the 2008 financial debacle revealed the TIC structural problems, the DST (2003 birth) with few exceptions replaced the TIC.

Neither individuals, Partnerships or LLCs or other entities can exchange properties into funds or real estate investment trusts.

Question 1:
If I sell a commercial property can I exchange into a REIT ?

Answer:
Regardless of the kind of real property, you can never exchange into a REIT.

Question 2:
I am a partner in a Apt. complex that we are preparing to sell and when it is sold I will realize about a 250K capital gain. I have been in the partnership for over 25 years. Can I take the gain and invest it in a REIT and use the 1031 tax free exchange?

Answer:
1. To do an exchange, you must exchange the original investment amount, the capital gain amount
and any debt.
2. You as an individual partner cannot exchange from an LLC or Partnership structure.
3. The REIT is not a vehicle into which anyone can do a 1031 exchange

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

With unique prior experience Marilee Hill with more than 20 years as a broker in the field of commercial real estate obtained FINRA licenses to specialize in securitized 1031 exchanges. Her first 1031 exchange 1991 was a $12M apartment acquisition before the existence of the TIC.

Marilee presents 1031 exchanges a in a straightforward way and helps clients to understand risk tolerance and financial requirements.

Laying the groundwork for 1031 exchanges means understanding people and how they work and explaining how every step of the process unfolds.

Ask Marilee about help to form a real estate strategy that will keep your plan legal and in the good favor of regulators.

Title Requirements and Changes, 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.

Title Requirements and Changes, Part 2

One of the requirements for a 1031 exchange is that the title on the sale property has to match the title on the purchase property. Otherwise, the execution of this strategy can be perceived as “gaming the system” to defraud the IRS. Then there are the footnotes — Husbands and wives have different requirements and title need not always be the same!

Dealing with family members is another sub section. Want to add a child? —Two years must pass afterwards before you then sell the property in an exchange. Want to sell to a family member? Family member needs to keep property for two years. And only one of you can do an exchange. However, marriage is a different scenario you can place your new spouse on the deed at the court house.

Helping people with their exchanges is never boring because there are always new wrinkles in the world of 1031 exchanges for a very basic reason — People and their circumstances keep changing.

Question 1:
What is the best strategy for a 1031 exchange property? Will adding by daughter to the title cause tax penalties? Or should I leave it as is?

Answer:
You must leave the title as it is; you cannot change the title near the time of sale. Two years ahead of sale would be safe, and then there is the “gift” tax to consider.

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

Marilee Hill brings a lot to the table in terms of real estate experience. As a broker and a property manager, Hill has learned the “rules of the road” and how to advise clients on various aspects of a real estate deal such as a 1031 exchange.

One thing that stands out in working with Marilee Hill is that she very much believes in making each deal a “people-centered deal” – she understands the value of navigating through a process with a variety of stakeholders, in close communication and in acknowledgement of everyone’s needs.

Let Marilee Hill help you with a plan to leverage a 1031 exchange opportunity.

Turning a Personal Residence into a 1031 exchange, 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.

Turning a Personal Residence into a 1031 exchange, Part 2

You’d be surprised how well this works: when you rent out your personal residence for a couple of years, a 1031 exchange deal can greatly lower your tax burden! Consider this:

Suppose a couple buys a home in 1979 for $125,000. They put about the same amount into capital improvements – added a pool, better appliances, a sun room, etc. Twenty five years later, they rent the home out for 2 years. After that, the sale of the property, eligible for a 1031 exchange, gets them a lot of excluded cash from full local and federal capital gains tax!

This is the sort of strategy that can help property owners to avoid leaving money on the table when it’s time to offload a valuable estate or home.

Question 1:
I would like to do a 1031 exchange with my home - set up a lease/option for 2 years to qualify. I would like to discuss/interview with local real estate and accomidator folks that have done this in Southern California. Home in La Canada has a value of $1,000,000 + and paid off..

Answer:
Congratulations! Your plan adheres to IRS Rev Proc 2005-14. You’re in good shape!

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

Over the years, Marilee Hill has been a property owner, a property manager and a FINRA-certified real estate broker – now she helps clients to understand the ins and outs of a 1031 exchange and everything that goes along with these deals. Hill enjoys helping others to find a good starting point on their way to maximizing their investment income and complying with “the rules of the game” according to the IRS and related regulators. While she doesn’t work as a QA, Hill does apply her years of experience in real estate to consulting property owners on what’s best for their real estate plans. Real estate deals can be rocky and hard to navigate – Hill understands the rules and the value of dealing directly with people!

Let her help with a plan to work a 1031 exchange through the allowed process correctly.

Turning a 1031 Exchange into a Private Residence, 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.

Turning a 1031 Exchange into a Private Residence, Part 2

When it comes to a successful 1031 exhange, sometimes patience works in your favor.

If you can handle deferred gratification, you can use a retirement gambit to make an exchange that will alleviate some of your tax burden and add to your long-term gains.

When you’re thinking of retiring, you can work ahead to sell your investment property and use the proceeds for a 1031 exchange into your future retirement location. Rent out the exchange house for a minimum of two years, and voila, you can move into the exchanged property and claim it as your primary residence. You can sell your long term primary residence and take out your adjusted gross base, plus a $250,000 exclusion per person on the deed, shielding those amounts from taxation. For a savvy property owner, this can be a big windfall.

Question 1:
Hi,\nI am doing 1031 exchange for a reason to convert income property into prime residence.\nDo I have to rent out for some time (1 year, 2years?) new property before I move in and make it prime residence?\nAlso can you give me any link to legal publication on this matter.\nThank you,\nAnatoli S.

Answer:
You must rent the house out for two years. As intent is so important to the IRS in 1031 exchanges, that rental period is key. Take a look at excepted custom supported by IRS Revenue Procedure, 2005-14, which helps determine safe practices.

Question 2:
Hi we Just moved into one of our rental homes which we bought in 2004 as a 1031 exchange. Our intent is to live in it for two years, sell as our primary residence to take advantage of the capital gains savings. Has this law changed?

Answer:
You get an “A”!; you have the steps correctly stated, and the law has not changed. Also, each of you will be able to utilize a $250,000 exclusion from taxes.

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

Marilee Hill has extensive experience in 1031 exchanges and real estate deals in general.As a broker who has managed her own properties, Hill now offers services and advice to clients to help them to achieve their goals.

Part of what has made Hill so successful, along with FINRA certification and other background, is her assertion that a lot of the real estate process is fundamentally about people. Hill says that “my clients’ success is my success” and this has served her well in helping others to complete real estate deals in a satisfactory way.

Get help from Marilee Hill to achieve a successful 1031 exchange and get more out of your real estate transactions.