Exchange Basics, Part 9

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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 9

Okay, so today’s market is different from what you experienced in the old days – today’s real estate investors have many options in addition to cash-only deals, and they also have the ability to structure deals in many different ways.

The 1031 exchange is one of those principles that is based on saving tax money, and that means it has to be looked at very thoroughly in terms of implementation. Investors need to know about like kind properties and necessary timelines, etc. They need to understand how each stakeholder party is treated by the IRS.

In order to help the real estate investor through this process, it’s important to hire a qualified intermediary. That helps to ensure that the deal is based on solid ground and that every T will be crossed, and every “I” dotted.

Question 1:
Currently own Restaurant (building / land)that is leased to daughter would like to sell to her or some one else. the original investment was 1.9 m capital gain is est at approx450.000 How much do I need to invest in a different & what kind of building

Answer:
So here, your real estate is held for productive use and qualifies for a 1031 Exchange. The restaurant has a lease and and the lease is not part of the sale; the lease encumbers the building. Essentially, you will need to exchange for an amount equal to or greater than the original investment plus your profit.

If any financing was in the purchase or there is now financing you need to secure financing to replace that amount or you can replace it with cash. Too many think that when the debt is paid off at settlement —-no ned to replace it — WRONG.

Question 2:
My husband is in the process of selling his land. Also in the process of buying from the County, land that once was leased to us. Could this possibly be a 1031 exchange? The only thing is that there is a cabin on the land that is being purchased that we own! Please help! Thank You!

Answer:
This deal can qualify for a1031 exchange under the right conditions.That the land was once owned by you is irrelevant to the exchange. You cannot include in the sale the cabin — you already own it — so have the documents reflect that the cabin is not part of the sale. A good attorney familiar with 1031 exchanges can easily create the correct documents — starting with the contract.

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

As a knowledgeable real estate professional with FINRA certification, Marilee Hill has a track record of advising clients on 1031 exchange deals and similar real estate transactions. She also understands the people side of the business which is important in dealing with stakeholders and helping them to understand the process of IRS rules and regulations. Let Marilee Hill help to advise you on a QI and everything else that’s so important in these deals.

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Marilee Hill, MA Hill