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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.

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

Exchanges with Partnerships, LLC’s and other Entities, Part 4

Trying to do a 1031 exchange with an LLC or partnership can be a thorny issue. It can be much different than an exchange with individual personal names. Where a retired couple can utilize a rental property to make an exchange, an LLC or partnership must abide by specific rules and regulations that might change that strategy.

Stakeholders in an “entity” can distribute assets in certain ways and after a two-year holding period, sell, go their separate ways while those choosing to exchange succeed in avoiding the capital gains tax. Then there's something called ‘drop and swap’ where different partners buy one another out in different ways. The key here is that most states allow this, but California does not.

From 1994 to 2002, with IRS modifications and the emergence of TIC and DST strategies the 1031 exchange has evolved and the results have given many more the opportunity to economically and efficiently “swap until you drop.”

Question 1:
I am selling my share of ownership from LLC to the other member. What are my options for doing 1031?\nPlease explain.

Answer:
You can't perform an individual exchange with an LLC. The traditional drop and swap transaction is no longer approved by the IRS, more scrutinized in California than other states. To effectively achieve your objective you need to plan ahead. First you distribute the assets of your LLC or Partnership to newly formed individual entities. You hold these new entities all owning a piece of the original property for two years and then you are able to sell with those who want to exchange and those who want to pay taxes all achieving their goals.

Question 2:
We own a commercial property with a partner. We put the building for sale it under contract. We our portion of the proseeds my husband and want to buy another commercial building to move our real estate businesse there. We rent to our self in the building we are selling. Can we do a 1031 exchange?

Answer:
It's important to have the property in personal names or separate entities and not in the name of the LLC or partnership in order to do the 1031 exchange. In terms of renting from yourself, this can be an effective as long as the rent and terms reflect the prevailing market.

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.

The Role of the QI (Qualified Intermediary), 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.

The Role of the QI (Qualified Intermediary), Part 3

When you're trying to do a 1031 exchange, having a qualified intermediary is important. It’s so critical to the deal that a deferred exchange flunks without a QI. Among multiple pieces of paper the Qualified Intermediary provides you the confirmation documentation that the IRS requires.

Treasury regulations show why a QI is required, and what kinds of eligibility restrictions there are. Most of these restrictions deal with self-dealing and conflicts of interest – generally, you cannot use a family member or someone who has been working for you for a long period of time in some general role such as your personal attorney or CPA. Aside from this, your choice of QI is pretty wide open.

Question 1:
If exchanging property from Texas to California does it matter which state the 1031 coordinator is in?

Answer:
The 1031 coordinator can be in any state, as long as your property is like kind, and that includes having both properties be in the U.S.

Question 2:
I have two properties I'm going to be selling soon so I can buy an apartment. The properties are in California and the Apartment I want to buy will most likely be purchased in in Texas. I had questions about the cost, and what my options are. Thanks.

Answer:
You're generally on solid ground with a Texas to California exchange, as long as properties are like kind. You have to work with 1031 exchange time guidelines and a Qualified Intermediary – normal fees are $600-$1000, but in this case, the QI might have to do two separate deals which may increase the cost.

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

Get free advice from Marilee Hill about a 1031 exchange process before going to a Qualified Intermediary. Marilee Hill has 20 years experience in the business and is a Registered Representative with a series 7 license qualifying her to provide properties for Accredited Investors governed by Reg D of the Security Act of 1933. She knows about the technical side of the business and the people side of the business as well. Marilee Hill has a lot of experience navigating these kinds of deals and consulting clients to stay on the good side of the IRS. Don't be afraid to ask her about a deal that you're dreaming up.

Exchange Basics, 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.

Exchange Basics, Part 4

When you want to get involved in some kinds of contemporary real estate deals you have to understand that they've gotten a lot more advanced than they were in the old days. It used to be that a simple cash deal was the most common kind of exchange. Now you have TIC and DST 1031 exchanges approved (Rev Proc 2002-22 and Rev Proc 2004-86) by IRS with regulations as to entity structure.

As with some other kinds of deals, a 1031 exchange can be deceptively complex. You want to save taxes, and that's a simple goal, or at least it seems like it should be, but the method is not always straightforward. There are lots of eligibility concerns, including like kind mandates and territorial requirements where the deal has to be apples to apples – US to US or foreign to foreign properties, for instance.

Dealing with these requirements and section 121 of code as well as other types of requirements takes some professional know-how. Make sure you're on solid ground with a 1031 exchange.

Question 1:
I bought an investment house for $210k in 2014 and will sell it soon for 250k. I spent 10k to replace AC and water heater, My gain from this transaction is only 20k. Does it worthwhile to do the 1031 exchange - how much will it cost me to set up the exchange?\nThanks!

Answer:
Not sure whether it's worth it to you or not. It depends on several things. First, the hard costs of a qualified intermediary range from $600-$1000. Then you have the gap between $210K and $250K, which is $40K, and the $10,000 may or may not qualify as a capital improvement. Ultimately, your tax bracket matters, too, and so you have to offset the cost of additional taxes with the cost of going through with the exchange. To find out your exact tax exposure hire a CPA with 1031 knowledge. If he does not know what Form 8824 is — call the next guy.

Question 2:
Hi, How can I calculate the closing or 1031 exchange costs in an individual income tax return.and in which form should I do it?\nAlso the property has been sold 632000 Around 39400 selling fee and the exchange property has been purchased around 495000 through Safe Harbor Exchange Inc. \nPlease advise.

Answer:
Your best bet in this type of situation is to hire a CPA who understands 1031 exchanges. You may be able to get more information from Safe Harbor Exchange. I recommend IRS form 8824 for specific guidance.

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

Marilee Hill is well qualified to weigh in on 1031 exchanges. With 20 years of experience, she understands Reg D of the Security Act of 1933 and the DST markets. Hill provides free services to customers who want to prepare ahead of time to know how to execute correctly a 1031 exchange. Marilee Hill’s experience includes being a real estate broker in multiple jurisdictions, and helping customers with tricky real estate deals. Talk to her about how you'll approach a 1031 exchange strategy to make sure you're on the right side of the IRS.

Exchange Basics, 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.

Exchange Basics, Part 3

Traditional real estate deals often tended to be done in cash, if the parties had the money. Now, 1031 exchanges have become more complex. It's important to know all of the details about 1031 rules, which can seem abstract, and IRS regulations, which are fairly set in stone.

The basic premise of a 1031 exchange involves deferring taxes. You want to be able to sell without having capital gains assessed on your profits and depreciation. There is the expression, “Swap until you Drop” at which time your heirs inherit at current market value and no ugly taxes due.

In order to do this with a 1031 exchange, you need to recognize like kind property rules. You have to understand the sale of primary residences and investment or rental properties and not confuse them. There's also jurisdictional requirements where US to US properties can be exchanged, or foreign to foreign properties, but not a combination of the two.

Question 1:
My wife and I are considering a 1031 exchange in the next 12 months (approximate value: 500k). We feel it would be prudent to have expert guidance before making any decisions.

Answer:
It's good that you're planning ahead — that leads to success or at least no disastrous surprises, such as failure to hire a Qualified Intermediary and blowing your 1031. Knowing the rules is definitely an advantage in this type of process.

Question 2:
Can cash equity replace debt on a 1031 exchange?

Answer:
Yes, cash equity can always replace debt.

Question 3:
With an exchange, is it correct that any loan on the replacement property needs to be equal or greater than the loan on the relinquished property?

Answer:
Yes, the loan on the replacement property has to be equal to or greater than the loan on the existing property – keep in mind you can always replace a loan with cash.

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

With 20 years in the business, Marilee Hill knows how to help clients with 1031 exchange deals. She understands the 1031 exchange and how to use a qualified intermediary to make a deal work.

Marilee Hill has experience with the rental side of the real estate business and the selling side. Her services in regards to a 1031 exchange are free – she just helps clients to start the deals. The qualified intermediary does the technical work for a fee.

Come see Marilee Hill about any questions you may have about a 1031 exchange deal.

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.

Turning a 1031 Exchange into a Private Residence, 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.

Turning a 1031 Exchange into a Private Residence, Part 3

If you're the ‘get rich quick type,’ skip the 1031 exchange – it's not a scheme for the person who likes immediate gratification. It's a long-term real estate strategy that works for those who are patient and work deliberately to maximize capital gains.

Here's how a 1031 exchange makes your money work for you – say you have a personal residence and an investment property – with exchange planning, you sell your investment property and exchange it with a property in a location where you want to move to for retirement or for other reasons. You can do this after a two year rental. You can move into the exchange property as your primary residence, and sell your former primary residence with no taxes on the the adjusted gross plus the $250,000 exclusion for each person on the deed.

Question 1:
If we sell our current rental property and we do a 1031 exchange on a single family residence, how long is one required to maintain that property as a rental, or investment, before we can claim it as a primary residence? We are looking to find a place where we might want to retire down the road.

Answer:
The rule of thumb in a 1031 exchange to be safe is two years. That will often be two different tax years — and remember to depreciate the rental.

Question 2:
did 1031 last oct., then moved into property 9 months later after breaking up with wife, we then sold are joint house she bought here own house in aug., I filed for divorce in june, what happens if i don't divorce her, is their enough " SPECIAL circumstances" or what would u advise

Answer:
A situation like this may call for getting creative. Nine months is not two years. I would recommend moving out of the house you occupied 9 months after your exchange and rent it. That is safe. All else is “facts and circumstances” caused by personal choices, not situations imposed upon you such as “my house burned down.”

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

When you talk to Marilee Hill, you’re talking to a 20 year real estate professional with FINRA certification who understands the ins and outs of 1031 exchanges and sophisticated real estate deals.

Want someone who understands the technical side of the business as well as working with people? Marilee Hill has helped many clients to achieve their 1031 exchange goals. This takes work and a dedicated attentive assistance toward the end goal. Marilee Hill is reliable and knows about how to help clients successfully pull off a 1031 exchange.