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.
Like Kind Exchange – Asset Class, Part 4
Many people who are hearing about a 1031 exchange for the first time wonder about what “like kind property” means. It generally refers to two different properties that are a similar type of property. But it sometimes gets pretty complicated.
For instance, before a revenue ruling in 1991, a particular client paid a real estate attorney over $100,000 in research costs and representation to declare a particular property “like kind”. After the IRS 1992 ruling defining “like kind” as exchange of real property held for productive use in a trade or business or for investment. After that broad definition, the revenue ruling meant that clients no longer pay those legal fees for determining like kind. Most CPAs are now knowledgeable.
Anyway, like kind is critically important to a 1031 exchange deal.
Question:
Can you do a 1031 from a commercial building to duplex and single homes to use as income.\n
Answer:
Yes, you can sell a commercial property and buy residential property. The tax-deferred exchange was first legislated in1921, and like many new ideas, the concept has evolved in ways that may not have been contemplated at its inception. In 1991, there was the creation of the safe harbor role of the Qualified Intermediary.
The 1991 law enabled what we now know as the ‘standard delayed three party swap.’ In 1992, the IRS clarified “like kind” to be assets held in a trade or business, or for investment; assets do not have to be of the same functional type (e.g. a residential property does not have to be exchanged for another residential property).
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.
