1031 Exchange FAQ

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Common 1031 Exchange Questions

Why does the Qualified Intermediary have to hold the proceeds from my 1031 Exchange? Why can't my Title Escrow Company?

Can a non-profit organization perform a 1031 Exchange?

Before I 1031 Exchange a property, can I borrow against it?

My father is selling his farm and purchasing another one out of state. He wants to add my name to the new purchase when he does the 1031 exchange. My name was never on the current property. Can he do this at the time of the exchange or does he has to wait a certain amount of time?

How do I use 1031 Exchange to split up a partnership?

With a 1031 Exchange, can I defer my depreciation recapture?

Yes, if there is any depreciation subject to recaptured (Section 1250) at the time of the 1031 exchange, no recapture takes place if there is no gain recognized on the exchange - it is carried forward and attaches to the replacement property. If there is gain recognized because of net boot received, the first gain recognized is the ordinary income from the recapture. If the total gain is more than the ordinary income from recapture, the balance is capital gain.

Example - Your Relinquished Property shows a recapture of excess depreciation in the amount of $30,000 at the time of the exchange. You trade up and no gain is recognized. The $30,000 is carried over into the Replacement Property and not recognized as gain at the time of the exchange. However, if you trade down and take - say - $25,000 boot, then the entire $25,000 gain will be recognized as ordinary income and $5,000 will carry over to your Replacement Property. If you took back - say - $40,000 boot, the entire $30,000 would be recognized as ordinary income and $10,000 would be recognized as capital gain.

Caution: This rule only applies if the substituted basis of the Replacement Property is more than the amount of recapture. If you exchanged for land only - there is no depreciable real estate to carry it over to. In this case, all the recapture amount of $30,000 would trigger and be recognized even though you took no boot at all.

Related Info: recapture, depreciation, defer, gain, recognized, boot, income, replacement


In a 1031 Exchange, what are the tax effects of receiving boot?

In a 1031 Exchange, all unlike property that is also traded is considered boot. Boot is the same as cash. If you take back boot outside of the 1031 Exchange Period (the time when your Qualified Intermediary is holding your proceeds) the funds are subject to the Capital Gains Tax and treated as income. If you take boot during the 1031 Exchange period, you may pay the Capital Gains tax on the entire 1031 Exchange Proceeds because taking boot during the 1031 Exchange Period will collapse your Exchange and cause it to fail.

Related Info: boot, receiving, effects, period, capital, gains, proceeds, income


Why is a 1031 Exchange called boot?

A 1031 Exchange is the continuation of your property investment when you exchange like-kind properties for the purpose of deferring your Capital Gains Tax to a future sale. Boot is the cash or non like-kind property portion in a 1031 Exchange. 1031 Exchange is not called boot, though there are portions of a 1031 Exchange that are considered boot. Remember, that receiving boot in a 1031 Exchange is a taxable event, subject to Capital Gains or ordinary income.

Related Info: boot, gains, like-kind, capital, portions, portion


I heard I can 1031 Exchange personal property. What is that?

The property used in business can be used in a 1031 Exchange. But they must be of the same class. The nonrecognition rules of 1031 Exchange do not apply to an exchange of one kind or class of personal property for personal property of a different kind or class. However, there’s an important exception to the personal property rules related to deferred exchanges of real estate. It’s explained in Chapter Five. The exception defines incidental personal property transferred with real property in a §1031 exchange.

Depreciable tangible personal property may be either “like-kind” or “like class” to qualify for nonrecognition treatment. Personal property of a like class is considered to be of a “like-kind.” Like-class properties are depreciable tangible personal properties within the same General Asset Class or Product Class.

General Asset Classes describe the types of property frequently used in many businesses. They include:

Office furniture, fixtures, and equipment,
Information systems (computers and peripheral equipment),
Data handling equipment (except computers),
Airplanes (airframes and engines), planes used in commercial or contract carrying of passengers or freight, and all helicopters (airframes and engines),
Automobiles, and taxis,
Buses,
Light general purpose trucks,
Heavy general purpose trucks,
Railroad cars and locomotives (except those owned by railroad transportation companies),
Tractor units for use over the road,
Trailers and trailer-mounted containers,
Vessels, barges, tugs, and similar water-transportation equipment (except those used in marine construction), and
Industrial steam and electric generation or distribution systems.

Product classes include property listed in a 4-digit product class (except any ending in “9”, a miscellaneous category) in Division D of the Standard Industrial Classification codes of the Executive Office of the President, Office of Management and Budget, Standard Industrial Classification Manual (1987) (SIC Manual).

Copies of the SIC Manual may be obtained from the National Technical Information Service, an agency of the U.S. Department of Commerce.

Here are two examples taken from Reg 1.1031(a)-2 Additional Rules for Exchange of Personal Property [xx] :

You transfer a personal computer used in your business for a printer to be used in your business. The properties exchanged are within the same General Asset Class and are therefore of like class.
Henry transfers a grader to Ron in exchange for a scraper. Both are used in a business. Neither property is within any of the General Asset Classes. Both properties, however, are within the same Product Class and are therefore of like-kind.

Related Info: personal, class, general, product, equipment, business


How do conservation easements on 1031 Exchange replacement real estate work?

From our 1031 Exchange Knowledge Base:

In LTR 9851039, the Internal Revenue Service ruled the exchange of an agricultural conservation easement for a farm property qualifies as a 1031 exchange. The IRS said a parcel of property was of like-kind when exchanged for a remainder interest in a parcel of property. The parties to the exchange were a trust and a corporation. The corporation had one class of stock. The trust owned most of the shares. The adult son of the trustor owned the rest. The corporation owned a parcel of land that it held as income producing rental property. The trust owned a parcel of property also held as income producing property.

The trust proposed to convey to corporation the property on which its headquarters was located in exchange for a vested remainder interest in the property owned by the corporation. After the exchange, the corporation would continue to use the property it gets in the exchange in its business.

The trust would hold its interest in the property it gets for investment. It would hold it as an income producing property when it ripens into a possessory interest at the end of a seven-year period. The IRS said the term "like-kind" refers to the nature or character of the property, not to its grade or quality. Therefore, certain factors, such as whether the property is improved or unimproved, are not relevant. The IRS said the nature and character of properties exchanged by the trust and corporation would constitute like-kind property. Because the nonpossessory interest would become a possessory interest and therefore, a fee interest, the rights vested in the parties were substantial.

Related Info: estate, work, real, replacement, easements, conservation, interest, corporation, owned, parcel, like-kind, income


In a 1031 Exchange, what type of property can farm land be traded for?

All land qualifies for 1031 Exchange as it is classified by the IRS as Real Estate Held for Investment Purposes. Farm Land falls under this category. A 1031 Exchange must be like-kind and according to the IRS Like-kind Real Estate is Real Estate Held for Investment AND Real Estate held for a business or trade. What this means is your Farm land in a rural area is considered like-kind along with an apartment complex downtown. You should realistically trade your farm land for another piece of land or another piece of real estates that is held for business or trade, such as a duplex or rental home. The choice is yours. Happy hunting!

Related Info: traded, land, farm, type, real, estate, trade, like-kind


Are you sure in a 1031 Exchange that land zoned for Farming can be traded for land zoned Residential?

Under the 4 classifications of Real Estate, Real Estate held for Investment purposes such as land qualifies for IRS 1031 Exchange like-kind property. There is no mention of how the land is zoned because zoning is a city, county or state issue, and rarely is it a federal issue. So we are certain that these two types of land are considered like-kind and subject to 1031 Exchange Tax Relief. There can be some issues if either parcel of land has a residence that is being used as a primary residence. There we are getting into mixed classification issues. More on Mixed Classifications as they relate to 1031 Exchange, can be found by clicking here.

Related Info: land, zoned, residential, farming, traded, classifications, issues, residence, mixed, like-kind


Can I 1031 Exchange my property with no mortgage for one that has one?

You are talking about a 1031 like kind exchange of unencumbered property for encumbered property. Proceed with caution and make sure you know what you are getting into. Here is some important information to consider with your tax advisor.

If you do not assume the mortgage on mortgaged property received in a 1031 exchange, you are taking the property subject to the mortgage. You are treated as if you assumed the mortgage.
If the mortgage you assume is less than the mortgage on the property given up, the net liability—called mortgage relief is counted as boot received by you.
If the mortgage you assume is more than the mortgage on the property given up, the excess is counted as boot paid by you.
If you transfer unencumbered real estate in exchange for mortgaged real estate, you have paid boot equal to the amount of the mortgage. The payment of mortgage boot does not result in recognition of gain or loss to the person paying it.

Related Info: mortgage, boot, assume, real, estate, given


How long does a 1031 Exchange take?

That's a great question and the answer is the length of your 1031 Exchange depends upon how long it takes to sell your property and purchase your replacements. Once your property is sold you have 45 days to officially declare your replacements. At the same time you also have 180 days from the closing of the property you sold to purchase all of your replacements. Sometimes a complete 1031 Exchange can happen in 24 hours, sometime it takes the full 180 days. It just depends on the nature of the property you are selling and how quickly you can continue your investment with your replacements.

Related Info: , replacements, purchase, takes, depends, full, sometime


In a 1031 Exchange, is Depreciation Recapture taxed as Regular Income?



If you 1031 exchange property subject to Depreciation Recapture, and no gain is recognized, the “recapture potential” of the Relinquished Property carries over to the Replacement Property.

If you exchange property subject to recapture, and gain is recognized because of boot taken, the ordinary income portion of the recognized gain is limited to the depreciation that would be recaptured as ordinary income if the property had been sold.

If you exchange property subject to depreciation recapture, and gain recognized because boot taken is less than depreciation that would be recaptured as ordinary income if the property had been sold, all the recognized gain will be taxed as ordinary income. The balance “recapture potential” carries over to the property acquired in the exchange.

Related Info: income, regular, taxed, recapture, depreciation, gain, recognized, ordinary


In a 1031 Exchange, what is the difference between land held for sale and land held for investment?

When you purchase land, it is difficult to prove that you purchased it with the intent to sell it, as the nature of a land purchase is to hold it for investment because most all land will continue to go up in value. In a 1031 Exchange, the two types of Real Estate that qualify for tax deferment is Real Estate held for investment or Real Estate held for a business or trade, as these types of property are considered like-kind, according to the IRS. Perhaps you have heard of the term, property held for sale. Don't confuse this term for land. Typically, property held for sale (or dealer property), refers to property purchased with the intent to "flip" for a quick buck. The IRS has taken steps to prevent these type of property from 1031 Exchange and they shouldn't be confused with land.

Related Info: land, investment, sale, difference, estate, real, types, purchase


After my 1031 Exchange, I'm going to have a taxable gain. When do I report this?

If you had a taxable gain from your 1031 Exchange, this means you probably received cash as boot from the proceeds of the property you sold. These funds are considered taxable and are included as income in your yearly tax filing. Discuss this at length with your tax advisor. He/she will you figure where and how to report it on your tax form. Remember to use the IRS form 8824 for reporting your 1031 Exchange to the IRS. Your tax advisor has access to it, or you can download it yourself at http://www.irs.gov/pub/irs-pdf/f8824.pdf.

Related Info: report, gain, taxable, going, form, advisor, he/she, figure


Does filing my tax return end my 1031 Exchange?

You have 180 days to close sale on all of your 1031 Exchange Replacement Properties. However. You need to understand that your April filing date is also the deadline, which mean if the April filing date is before your 180 day deadline, the April filing date trumps your 180 date. The good news is that you can file for an extension. What if you file before the April filing date? Your closing deadline is still the April filing date, UNLESS you file for the extension which the places your 180 day back to the original 180 days after the closing of the property you sold.

Related Info: return, filing, date, april, deadline, extension, closing


How do I use 1031 Exchange to split up a partnership?

1031 exchange is an excellent vehicle for “splitting-up” two (or more) co-owners.

Let's say you and I both own a rental property as co-owners that we will call the Skyline Apartments. From some reason you want out but I am not willing to give up my interest. If I buy you out, you have a big taxable gain. You don't want this.

So, you find another rental you want to buy. I buy the property and swap it for your 50% tenant in common interest in Skyline. The result is you get your entire equity out of Skyline with no recognized gain and I end up with 100% ownership interest in Skyline.

This can also work to take out a 25% owner, 10% owner and so on.

Related Info: partnership, split, skyline, interest, rental, gain, owner, co-owners


What is the information I need in order to start a 1031 Exchange?

As you prepare for a 1031 Exchange, you should consider the following:

Do you have a like-kind property?
The property you are selling must be either a property held for investment purposes, such as land OR property held for business purposes, such as a rental.

Will you owe any Capital Gain Tax?
Subtract your Adjusted Basis from your Adjusted Sales Price. If you have a Realized Taxable Gain, you should consider a 1031 Exchange to defer the costs.

When you are ready to hire a Qualified Intermediary (Realty Exchangers), the following information is needed to begin your 1031 Exchange:

Your complete contact information: Name, Address, Phone, Cell, Email.
Your Realtor's complete contact information: Name, Company, Address, Phone, Cell, Fax, Email
Complete Information about the property you are selling (the Relinquished Property): Address, City, State, Zip, Legal Description (if needed)
Complete Closing Company Information: Company, Address, Agent's Name, Address, Fax, Phone, Email. Escrow number assigned to your property.

Related Info: start, order, information, address, complete, phone, name, email


Do you have any examples of a 3-cornered 1031 exchange?

Earlene T. Barker, 1980 74 TC 555 is a good example and road map to follow in structuring a three-cornered 1031 exchange through a fourth-party escrow holder. Under a series of interrelated contracts, fourth party (the accommodator) took title and received payments for all properties, then transferred title and cash among parties to carry out the exchange.

Under escrow agreements, successful closing of each transaction depended on successful closing of all others. This integrated agreement, and the fact that Barker had no option or right to take cash, guaranteed nonrecognition of gain under §1031.

In Joyce M. Allen, the taxpayers' attempted three-corner exchange did not qualify for nonrecognition of gain under §1031. The transaction was held to be a sale and a purchase. The two transactions were only related by the fact that proceeds from sale of one property were used to buy the other property. The court held the transfers of property were not steps in an integrated transaction and nothing in the records indicated the successful completion of either transaction was a condition of the other. If Allen's purchase escrow had failed, she would have ended up with the proceeds from the sale of her property.

Tax Case: In computing “boot” on three-cornered realty exchange, transferor's receipt of cash to satisfy mortgage on property she transferred was offset by larger mortgage on property she received in exchange. Fact that cash was paid into escrow and mortgage was paid off before transfer was completed didn't bar “netting” of liability discharged against liability assumed. In effect, transferor was merely conduit for funds.Comm. v. North Shore Bus Co., Inc., 32 AFTR 931, 143 F.sd 114 (sd. Cir., 1944) followed.

Related Info: 3-cornered, examples, cash, escrow, transaction, sale, mortgage, successful


I just sold my rental property. Is it too late to turn it into a 1031 Exchange?

Chances are, YES, it is too late to 1031 Exchange a property once that property has already sold, title has changed and you have access to the funds. Careful planning with your tax advisor is paramount. Next time you are planning to sell a business or investment property be sure to discuss it immediately with your tax advisor or contact your friendly 1031 Exchange Qualified Intermediary at 800-570-1031.  The 1031 Exchange rules were written by the IRS and designed to be easy to follow.

It should be noted that if you sell your property and have not yet taken title and haven't had access to the money, it is possible to contact your closing company and reverse your sale before the title changes. Your attorney can be off help in this situation as well.

Related Info: rental, title, access, advisor, planning, closing, money


Can I 1031 Exchange an investment property and use the proceeds to reduce the principal of another investment property?

You must have an exchange of qualifying 1031 Exchange properties in order to make this work. The question you describe doesn't sound like you are purchasing a like-kind property.  So, in this case the answer is no. However, if you intend to purchase the other investment property, then Yes, perhaps you can have a 1031 Exchange. Better to call us at 800-570-1031 and explain your exact situation.

Related Info: investment, principal, proceeds, reduce, purchase, intend, perhaps, 800-570-1031, situation


I want to do a 1031 Exchange but don't understand why I cannot hold the funds in my bank?

The secret of a successful 1031 exchange is to avoid holding the money or other property during the transaction. If you receive cash proceeds during your 1031 exchange, you will not qualify for the capital gains deferment. While this sounds easy to avoid, it's not. You must overcome the doctrine of " constructive" receipt. The general rules concerning actual and constructive receipt apply to determine if you are in actual or constructive receipt of money or other property before you actually receive like-kind Replacement Property.

You are also treated as being in receipt if you receive the economic benefit of the money or property. You are in constructive receipt of money or property at the time the money or property is credited to your account, set apart for you, or otherwise made available to you so you may draw upon it at any time. Or if you can draw upon it if notice of intention to withdraw is given. In addition, actual or constructive receipt of money or property by your agent is actual or constructive receipt by you.

The deferred exchange Regulation provides a "safe harbor" that permits you to sell your Relinquished Property and acquire Replacement Property and avoid constructive receipt. This safe harbor is your written contractual agreement with a Qualified Intermediary.

Related Info: bank, funds, receipt, constructive, money, actual, receive, time


I want to 1031 Exchange a 4-plex but I live in one of the units. How does that work?

What we are talking about here that you want to 1031 Exchange a property that has a mixed classification. The 4-plex qualifies for IRS 1031 Exchange because it is considered a property held for business. The single unit that you live in is classified as your primary residence, which does not qualify for 1031 Exchange.

1031 Exchange sounds like a great idea in these situations because the entire property would be exchanged - the business portion would qualify for 1031 treatment - and even though the residence portion is a part of the exchange, since it does not qualify for 1031 treatment, it's treated as a sale and qualifies for the Section 121 exclusion. It's like having your cake and eating it too! Great question!

Related Info: work, units, live, 4-plex, qualify, residence, treatment, business, qualifies, portion


Can I 1031 Exchange my Rental Unit and apply any of the proceeds to my personal residence?

No. There are a couple of issues here. In order to qualify for 1031 Exchange treatment there MUST BE AN EXCHANGE of properties. This won't happen since you are the owner of the rental property and the personal residence. Also, usage of the proceeds must for a like-kind property. A personal residence is not a like-kind property and real estate held for personal use does not quality for 1031 Exchange Treatment.

Related Info: personal, residence, proceeds, apply, unit, rental, like-kind, treatment, quality, usage


Can you do a 1031 Exchange with your second residence?

Are you renting it out or do you live in it part time? This is an important distinction to make when considering a 1031 Exchange, because if you are living in it part time, which is defined as more than 14 days a year, the IRS will consider your second home as real estate held for personal use, which does NOT qualify as like-kind under 1031 exchange. However, if you are living in the home less than 14 days a year AND you can show that you have collected rents from the home for 2 or more tax periods, you have a good chance of showing the property is a rental and it would quality for section 1031 exchange.

Related Info: residence, second, home, time, living, periods, collected, show


Can I be my own Title/Closing/Escrow/Attorney/CPA in a 1031 Exchange?

It's true. In a 1031 Exchange situation, people often consider this option. Think about it. You could save so much money on the closing of your property if you didn't have to pay those annoying fees like Title insurance, Broker's fees, etc. You can write your own closing statements and report your sale to your county. The savings potential is tremendous!

One problem. RISK!

How do you know if you are buying property from the person who actually owns that property? I could write an offer to sell you my interest in the Empire state building for $100k on a paper napkin. How do you know if I own any part of the Empire State Building?  And if you are dumb enough to take my offer, please let me know when you want to meet and be sure to bring the $100k in cash, small spendable bills, please.

Without a Title Search how are you going to know whether they own the property or not. Without Title insurance, how do you know if the property has any liens or mortgages against it. What if 10 years of property taxes are owed? What if you buy the property without this knowledge, without Title insurance, YOU would be liable for the liens. That's a risk we don't like very much.

Another problem.

Now that we are throwing a 1031 Exchange into the mix, we have a problem of something called constructive receipt. One of the first rules of 1031 Exchange is to avoid constructive receipt. Constructive Receipt, as it refers to 1031 Exchange, means that at some time during your 1031 Exchange period, you had active access to the 1031 exchange proceeds. If you are acting as your own Title Company, this means you have had control over the the proceeds which makes you in Constructive Receipt of the funds. Plus, you Closing company is supposed to be a third party, this is an IRS rule!

No. Acting your own Title Company is not a good idea. We recommend you follow the IRS rules, use your brain and hire a Title company to help you with your 1031 Exchange.

Related Info: title/closing/escrow/attorney/cpa, title, receipt, constructive, company, insurance, closing


What is an Earnest Money Clause?

We recommend that you insert following clause into your Purchase & Sale agreement. This way all parties know that the transaction will be a 1031 exchange, and there will be no lack of disclosure which may obstruct the transaction. (This is merely a suggestion, and is not required by the "1031" regulations )

"A material part of this transaction is the successful completion of an I.R.S. Code Section 1031 deferred exchange. "Buyer/Seller" agrees to cooperate with the "Exchanger" (note: insert the full name of the party doing the exchange in place of the word "Exchanger") in signing those documents necessary to complete the exchange, provided that "Buyer/Seller" shall incur no additional costs or liabilities in excess of those which would have occurred had this been an outright "purchase/sale," and not an exchange."

Related Info: clause, money, earnest, transaction, exchanger, buyer/seller, insert, word, signing


Can I 1031 Exchange Property I purchased from a 1031 Exchange 4 years ago?

Good question. To 1031 Exchange any property, you need to consider a few things. First, what kind of real estate is the property we are talking about? If it's land, the answer is almost always going to be yes because land is always considered real estate held for investment purposes.  If the property is an apartment building which you have been actively collecting rents from, the yes, the property qualifies for 1031 Exchange. However, if this property is a rental home that you converted into your primary residence then the answer is no because you changed the classification of the property and property that is your primary residence does not qualify for 1031 Exchange.

Related Info: years, purchased, residence, land, estate, real, primary, home


In a 1031 Exchange, what is the classification "real estate held for sale"?

Of the IRS's 4 classifications of  Real Estate this term can be the most difficult to taxpayers to grasp. The correct term is "real estate held for sale to customers". Our 1031 Exchange Knowledge Base has a very insightful article about this subject. Here is an excerpt that will be very valuable to you.
"This classification is known as dealer property. To be classified dealer property, the property must be held at the time of sale or exchange
primarily for sale
to customers
in the ordinary course of business.
All three elements must exist at the time of sale or exchange or the property will not be classified dealer property. Primarily for sale means of the first importance. It does not have to constitute more than 50% of the purpose—it need only be the most important. The Supreme Court said, “If an owner acquires a property for rental or investment use, but also plans to sell the property and realize gain in any way he can if the original plan becomes unfeasible, he does not hold the property primarily for sale.”
All buyers of real estate are customers as the term is used here. The activity “in the ordinary course of business” must be directly related to the sale of that property. In addition, the activity must be “busy.” The two “busy” activities usually related to sales or exchanges are
1. sales activities related to the property, and,
2.physical improvements to the property.
Many people, including many IRS agents, misunderstand this activity. To be classified dealer property, there must exist a busy business activity directly related to that property. If you buy a parcel of land, subdivide it, and build houses for sale, there's no question you have dealer property. But if you buy a parcel of land, make no physical improvements, subdivide it by getting it rezoned and meeting other legal requirements, and sell it in the form of an unsolicited offer—you get capital gain treatment. The reason? No business activity related to the property. [iii]
If the property is listed with a licensed real estate broker, the sales activities of the real estate broker are not considered to be the sales activities of the owner.
The Tax Court has held the real estate activities of corporations owned or controlled by an individual cannot be attributed to him even though he may be engaged full-time as an officer of the corporation.
Licensed real estate brokers and salespersons ordinarily are not dealers. In Scheuber v. Com. 371 F2nd 996, it was held properties purchased by a licensed real estate broker (who intended ultimately to sell) and held for realization of appreciation in value over a substantial period of time were capital assets.
If dealer property is sold at a gain, the gain is taxed as ordinary income. If dealer property is sold at a loss, the loss is deductible as an ordinary loss."

Related Info: sale, estate, real, classification, dealer, related, activity


When can I have my 1031 Exchange Proceeds back?

It all depends on whether you have already identified your 1031 exchange replacement properties. If you already have, then you must wait until your 1031 Exchange Period is over before you should collect your money. If you have not yet identified your replacement properties, then you may have your proceeds back, though these would now be subject to Capital Gains tax.

Related Info: proceeds, replacement, properties, identified, capital, gains


I just closed a 1031 Exchange property 10 days after I sold my house. Was I supposed identify the property before I bought it?

Good question. The IRS rule for 1031 Exchange is that you have 45 days after the sale of your relinquished property to Identify your replacement properties. The fact that you closed on your Replacement property for 45 day date, means that you have automatically identified your replacement property so you don't need to do anything else. The big question is, did you spend all of the proceeds? If not, you could be liable for the tax on the unspent proceeds.

Related Info: bought, identify, supposed, house, closed, replacement, proceeds, identified, automatically, spend, unspent


How do I find a 1031 exchange?

If you are searching for a qualifying 1031 Exchange property, the best place to begin your search is the Exchanger's Clearinghouse, located at http://www.exchangersclearinghouse.com. This web site is full of listing from taxpayers seeking to exchange their property for qualified 1031 property. Another place to search is the 1031 Exchange Professionals directory. Here is a list of Realtors from every state who have helping customers purchase and sell 1031 Exchange Real Estate.

Related Info: , search, realtors, list, directory, state, professionals


My 1031 Exchange has an option contract with the buyer. How does this work?

In a 1031 Exchange,  gain or loss from of an option contract is considered gain or loss from the exchange of property. The option contract takes on the same classification as the property (to which it relates) would have if acquired by the optionee buyer.

Here's how it works for the 4 classifications of real estate:

Business Property —If the underlying property would have been business property in the hands of the optionee, the gain or loss is subject to §1231 treatment. To qualify, the option must have been held for more than one year. Under Section 1231, gain is treated as long-term capital gain. Loss is treated as ordinary loss. If the holding period of the option is one year or less, gain is treated as ordinary income. Loss is treated as ordinary loss.

Investment Property —If the underlying property would have been investment property in the hands of the optionee, capital gain or loss is realized. If the option was “held” for more than one year, the capital loss is long-term. If one year or less, short-term.

Personal Use Property—If the underlying property would have been real estate held for personal use in the hands of the optionee, gain is treated as capital gain. If a loss is suffered, it is personal and not deductible.

Dealer Property—If the underlying property would have been real estate held as property for sale to customers in the ordinary course of his trade or business by the optionee, any gain is treated as ordinary income. Any loss is treated as a deductible ordinary loss.

Related Info: work, buyer, contract, option, loss, gain, treated, ordinary, optionee






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