1031 Exchange FAQ

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Common 1031 Exchange Questions

After we close on my relinquished property, how soon can I access my proceeds.

Someone told me I can 1031 Exchange my Condo, that true?

What is the Realtor's role in a 1031 Exchange?

My biggest worry about doing a 1031 Exchange is the 45 day deadline. Help?

How do I handle the earnest money deposit for the purchase of my 1031 Exchange Replacement Property?

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


In a 1031 Exchange, can I have a gain even if I don't have any boot?

YES! Believe it or not. Many people don't know or even realize them, some pros may not know it as well.

It is possible, in a 1031 exchange, to recognize gain even if not one cent of boot is received! There’s a little-known rule that can cause you to trigger the entire recapture as ordinary income even if you do not recognize gain figured under the regular exchange rules. Recapture income will be recognized if the fair market value of the depreciable property you receive in the exchange is less than the income subject to recapture. The amount of gain recognized is limited to the difference between the depreciation subject to recapture and the value of the depreciable property.

Related Info: boot, gain, recapture, income, recognized, value, depreciable


Can I 1031 Exchange the acreage near my residence?

Real Estate Held for Investment is considered like-kind and qualifies for 1031 Exchange. Your personal residence is considered Real Estate Held for Personal Use and does NOT qualify for 1031 Exchange. The scenario you describe is what is called a Mixed Classification. If all or some of the property you want to sell does not qualify for §1031 treatment, a transfer of that property in an exchange transaction will be treated as a sale of that property and subject to Capital Gains Tax. However, the property that does qualify for 1031 Exchange and an attorney can help you carve out your Purchase and Sale Agreement to reflect this.

Related Info: residence, acreage, qualify, personal, real, estate, sale, capital


Can my brother be the Qualified Intermediary in my 1031 Exchange?

Your brother is considered an "agent of the exchanger" and cannot qualify as a Qualified Intermediary for your 1031 Exchange.

A person is a disqualified person if:

The person is an agent of the exchanger at the time of the transaction.
The person and the exchanger bear a relationship described in Section 267(b) or Section 707(b). However, you must substitute “10 percent” for “50 percent” each time it appears in those Sections.
The person and a person who is an agent of the Exchanger at the time of the transaction bear a relationship described in (2) above.

These people are treated as agents of the exchanger: A person who has acted as the exchanger’s employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period ending on the date of the transfer of the first of the relinquished properties. However, the regulation disregards certain services for purposes of determining if an agency relationship exists. Performance of services with respect to exchanges of real estate intended to qualify under §1031 is not taken into account.

Related Info: brother, person, exchanger, time, agent, relationship, services


How does the 1031 Exchange 95 percent % rule for identifying replacement properties work?


When you conduct a 1031 Exchange the IRS says you must identify your replacement properties no more than 45 days after you sell your property. There are 3 options of identifying your replacements, the most popular is the 3 property rule. The others are the 200% rule and the 95% rule.
With the 95 percent rule, you may identify any number of Replacement Properties if during the Exchange Period you actually received identified Replacement Properties having a fair market value equal to or more than 95 percent of the total fair market value of all identified Replacement Properties.

Related Info: properties, work, replacement, identifying, rule, percent, fair, identified


My 1031 Exchange period ends tomorrow, how soon can I get my money back?

In a 1031 exchange you can receive unused proceeds anytime after you have acquired all of the properties identified in your 45-day identification time period. If you do not acquire all of the properties identified in the 45-day identification, then the unused proceeds cannot be released until the earlier of the due date of your tax return including extensions, or 180 days after the closing of the sale of the Relinquished Property. This is meant to protect you from Constructive Receipt of the money, which will cause your 1031 Exchange to collapse and prevent your from deferment of your capital gains tax.

Related Info: money, ends, period, identified, 45-day, properties, identification, proceeds, unused


I want to 1031 Exchange a building that I intend to demolish. Can I write off the demolition costs?

Sometimes in a 1031 exchange, the exchanger acquires land and buildings with the intent of tearing down the buildings to make way for new construction. This type of exchange qualifies for exchange treatment if the Replacement Property is held for use in a trade or business (such as rental property) or is held for investment. But taxpayer, be wary, there is a sinister double tax trap when the demolition tax rules apply.

The Internal Revenue Code bars deduction of the cost of demolition or any loss sustained on account of the demolition. And you are denied a write-off for the adjusted basis of the depreciable assets being demolished. Both the cost of demolition and the adjusted basis of the depreciable assets must be capitalized and added to the basis of the land where the demolition structures are located.

Here’s an example of how this works: You exchange a commercial property you have owned and operated as a rental for several years. You exchange for a large older residential rental complex located on ten acres of land. You intend to tear down the existing structures and build a new rental residential apartment complex.

Under the substituted basis rules of Section 1031, you figure the basis of your Replacement Property to be $2,300,000 with $1,100,000 allocated to the basis of the existing buildings. Your cost of demolition is $200,000. Under the demolition rules, you are required to add $1,100,000 – adjusted basis of the buildings – and the demolition costs of $200,000 to the basis of the land. You are not permitted to write-off as an expense the adjusted basis of the depreciable buildings or the cost of demolition.

Comment: The tax-writing mystics who conjured up this provision have magically reincarnated your demolished depreciable buildings as nondepreciable land, proving once again there is life and taxes in the great hereafter.


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Related Info: costs, demolition, demolish, intend, building, basis, buildings, land, depreciable, adjusted


Can I use my 1031 Exchange Proceeds to make improvements on my replacement property?

The rules about 1031 exchange are such that the proceeds from the sale of your property must be applied to purchase of your replacement properties. Let's run out this scenario and see where it goes. Just so you know this has actually happen but we'll remove the names to protect the not-so innocent from their foolish selves.
Let's say you sell your rental property as a 1031 Exchange. A month later you find another rental property that you want, so you identify that property as your replacement and begin working out a deal with the owner to purchase it. Upon inspection of the property you determine that you want to "gut" the house, removing the lathe and plaster and replace it with sheet rock. You also decide you want to replace the aging roof. So you make a deal with the property owner who wants to sell it in "as-is" condition that you will make improvements to the home as a 'partial payment" for the property. The owner agrees that the amount you spend will be deducted from the total purchase price of the property. So you take a "withdrawal" of $20,000 from your 1031 Exchange proceeds to purchase the materials you need to fix walls and roof of the home yourself and begin your work. After you've torn the house apart, you discover extensive water damage with has lead to rot and mold on all of the walls of the house. No you've decided not to purchase the house after all and you're stuck with a purchase of materials for a house that you don't even want. Plus you've already torn it apart and the property owner is going to sue unless you fix it! Yikes!
First off, it is important to understand that many of the aspects of this scenario should never have happened in the first place. If you Qualified Intermediary allowed you to withdraw funds from your 1031 Exchange proceeds "like a bank" you would be in extreme danger of allowing your Exchange to collapse. This becomes a constructive receipt issue as you should never have control over the money during the exchange period. The constructive receipt rules were put in place to prevent this type of scenario.

Also, 1031 Exchange proceeds are intended ONLY as the funds to outright PURCHASE your replacement properties, you cannot use them as some sort of down payment, that they can be a partial payment (which you'll kick in some more of your own money) at the time of closing.

Further, common sense is often mis-placed when we spot a "good deal" on a property we think we must have. In the above scenario, a proper home inspection should have happened before any deal was struck and an attorney should have been consulted to prevent this episode. People make mistakes, luckily there are rules to save them from themselves.

Related Info: replacement, improvements, proceeds, purchase, house, owner, payment, home


Do the 1031 Exchange rules apply to foreclosure transactions?

To the person losing the property, a foreclosure is treated by the IRS as a sale of the property. If the "sale" could be structured according the rules of Section 1031, the sale could be recognized as a 1031 exchange. But it sounds like a legal nightmare if the property is already in foreclosure. Also, you might have a forgiveness of debt problem. You should talk to your CPA or attorney regarding this before you take any steps.

Related Info: transactions, foreclosure, apply, rules, sale, debt, forgiveness, nightmare, problem


After my 1031 Exchange, how soon do I need to report it to the IRS?

Reporting your 1031 Exchange to the IRS is an event that happens when you file your tax return for the year that the 1031 was executed. Your CPA or tax advisor knows to use IRS Form 8824, which is available by clicking here. This document must be completed by your or your tax advisor and returned with you file your taxes. Careful consideration must be used when you fill out this document. Make sure your tax advisor knows all the facts about your property sales and reports the gains and losses properly.

Related Info: report, advisor, document, sales, consideration, taxes, reports


What is my 1031 Exchange Tax Basis on a property I buy back after I lose it in a bankruptcy?

If you lose real estate in a bankruptcy, and later buy it back from the trustee in bankruptcy, your basis is what you pay to get it back. It's not your original pre-bankruptcy basis. In one case, a taxpayer owned rental property and filed a petition in bankruptcy. Later, she paid the trustee $9,000 to get the property back from the bankruptcy estate. The Tax Court said her basis in the property was $9,000 plus any related costs and not her pre-bankruptcy basis. Once she filed for bankruptcy, she lost ownership of the property. If you chose to 1031 Exchange this property, your basis is what you paid to get the property back, not what is was before the bankruptcy.

Related Info: bankruptcy, lose, basis, paid, pre-bankruptcy, filed, trustee


When my qualified Intermediary holds my funds, how safe are they?

Given todays economic climate, we can think of no better question to ask. You should know that as your 1031 Exchange Qualified Intermediary, Realty Exchangers takes the safety and security of your funds very seriously.

For over 20 years now the safety of client proceeds has been of prime importance to us and here's what we've done about it.

The two most important areas of concern are:

1. The Bank where client funds are deposited.
2. The Qualified Intermediary.

1.) The Bank: Although our bank is considered strong and very well capitalized the only real safety for bank accounts today is "FDIC" (Federal Deposit Insurance Corporation) insurance. Our bank, Riverview Community Bank of Vancouver Washington, has qualified for the FDIC's Transaction Account Guarantee Program and ALL OF REALTY EXCHANGERS ACCOUNTS ARE "FDIC" INSURED. Unlike previous "FDIC" insurance there is no upper limit on the amount.

2.) The Qualified Intermediary: Our company is Licensed, Insured, and Bonded but the only real protection is a QUALIFIED ESCROW AGREEMENT. This is a separate signed agreement between you, us, and the bank, which requires you to approve in writing any withdrawal of your 1031 funds. At the same time it keeps control of the 1031 funds with Realty Exchangers, Inc. thereby meeting the IRS's §1031 requirements (see note below). Unless otherwise requested ALL EXCHANGE ACCOUNTS WILL NOW INCLUDE A QUALIFIED ESCROW AGREEMENT.

Note: The Qualified Escrow Agreement is signed by all parties at the time of closing of the relinquished property. When the 1031 funds are wired into Realty Exchangers account the bank places a hold on the account. Then when the exchanger is ready to close on the replacement property a form is signed by the exchanger (you) that authorizes the bank to release the specified amount to that escrow as requested by Realty Exchangers wiring instructions. Quite simply, the exchanger will have to authorize any use of their 1031 funds.

We want you to feel secure and able to devote your full attention to the structure and completion of your 1031 exchange knowing that your funds will be there when you need them.

Related Info: safe, funds, holds, bank, realty, exchangers, escrow, agreement


What qualifies as Real Estate held for investment?

Real Estate held for investment is one of the 4 classifications of Real Estate that the IRS has said qualifies for 1031 Exchange. Typically, this almost always land. Investment real estate is a capital asset (IRC Section 1221). It's property held primarily for appreciation of value due to location, passage of time and other factors outside the activities of the owner. It is treated as a portfolio investment asset. Even if purchased with the idea you might someday develop the property, if you don't develop it (for any reason), the property will not lose its classification as investment property.

Related Info: investment, estate, real, qualifies, develop, asset, owner


If I sell a property in Maryland, can I buy a property in Texas?

Answer: Believe it or not, this is a very common question. Many people don't realize that the IRS 1031 Exchange is a federal action that can be executed in all 50 states, including the U.S. Virgin Islands. In short, the answer is "yes". For example, if you own land in Maryland and want to purchase land in Texas, a 1031 Exchange is certainly an option if you goal is to defer the capital gains tax on the sale of your property.

Related Info: texas, maryland, land, certainly, purchase, option


Do I need to change my purchase and sale agreements to conduct a 1031 exchange?

No. The decision to sell your property as a 1031 exchange is yours alone. Realty Exchangers will supply you with an Assignment of Purchase and Sale Agreement which must be signed by both parties. This agreement stipulates that Realty Exchangers is your Qualified Intermediary and you are assigning us contract rights in your behalf for the property. We will contact your Title/Closing Agent and inform them that we are your Qualified Intermediary and will supply them with the documents necessary to close sale on your property.

Related Info: conduct, agreements, sale, purchase, change, supply, agreement, exchangers, realty, rights


When is a 1031 Exchange taxable?

It must be understood that ALL property sales including those that have been converted to 1031 Exchange are taxable. The difference is when do you pay the tax? On a straight sale, you would pay the tax in the same year that you sold the property. With the 1031 Exchange you get to enjoy the benefits for deferring your capital gains tax until the next sale of that property.

When the IRS adopted the 1031 Exchange rules in 1990-91, the intent was to control how 1031 Exchanges were handled. The rules are simple and include:

1.  Both properties the one sold and the ones bought must qualify as like-kind.

2.  1031 Exchange proceeds must be stored in a Safe Harbor during the 1031 Exchange Period, no exceptions.

3. Replacement Properties must be identified with 45 days of closing sale on the sold property.

4. All purchases of Identified Replacement Properties must be closed within 180 days of the sold property.

Attempts to disregard or circumvent any of these rules, converts your 1031 Exchange back into a sale which means your capital gains tax would be due in the same year that you sold your property.

Related Info: taxable, sale, rules, properties, gains, identified, replacement


In a 1031 Exchange, what if the owner occupies one of the units of a 4-plex? Restrictions?

Remember, that a 1031 Exchange is for like-kind property. The dwelling  that the owner occupies,regardless of whether it's a home or an apartment, is not considered like-kind with the rest of the unit in the complex, it's considered real estate held for personal use, which has a different tax provision. What we are discussing here is what is called a Mixed Classification and if there is an exchange of the entire property, the personal dwelling becomes boot, which is subject to Capital Gains tax with no deferment.

Related Info: restrictions, 4-plex, units, occupies, owner, like-kind, personal, dwelling, entire, classification, becomes


How long can I own a 1031 Exchange Rental property before I can live there?

Remember, it's all about intent. For example, if, at the time of your 1031 exchange, you had no intention of converting your rental into your primary residence but an unforeseen event, not related to the exchange, takes place—perhaps the death of a spouse. Or the rental turns out to be an unbearable negative cash flow situation. You should be able to demonstrate to the IRS your original intent. In such cases, you should have no problem supporting your 1031 exchange.

Related Info: live, rental, intent, cash, flow, negative, unbearable


Thinking about a 1031 Exchange but I need some help. Any ideas?

Get all the 1031 Exchange information you need from one source, http://www.realtyexchangers.com. Founded in 1989 the FIRST on the web in 1995, Realty Exchangers is THE source for 1031 Exchange Information. Launched in 1995, Our FREE 1031 Exchange Procedure Manual was first with the best content for understanding and executing an IRS Section 1031 Exchange. Written by James D Maxwell, the founder of Realty Exchangers, Inc and a career ALC, GRI 1031 Exchange Real Estate pro & Richard Robinson, a nationally recognized CPA, the FREE 1031 Exchange Procedure Manual, our 1031 Exchange Procedure Manual is the one the pros use when they need fast, expert 1031 Exchange Information. Easy to use, easy to understand and covers EVERYTHING you need to know to successfully execute an IRS 1031 Exchange. GET it today!

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Is property in Puerto Rico allowed for 1031 Exchange?

1031 Exchange is available to US Taxpayers who are purchasing and buying property in all 50 states of the USA and the US Virgin Islands. Puerto Rico is not mentioned in the IRS code and is considered foreign soil for 1031 Exchange. Which means property in Puerto Rico does not qualify for like-kind treatment in a 1031 Exchange.

Related Info: allowed, rico, puerto, soil, foreign, means, qualify


Someone told me I can 1031 Exchange my Condo, that true?

The biggest issue you have to look at if you plan to 1031 Exchange your condominium is if you are currently living there as a primary residence.

If you use your condominium as your primary residence, and sell it, the rules applying to the sale of your primary residence will apply.

But, if you use your condominium as rental income property, all the rental deduction and income rules apply and it may qualify for 1031 exchange.

The cooperative form of ownership is similar to condominium ownership. Both involve the collective control of certain facilities of the project and common areas. The difference between the two is the way title is held. The condo owner has fee simple title in a specific unit. The development’s facilities and common areas are jointly owned with other condo owners. Under cooperative ownership, a corporation owns the entire residential building. Each “tenant” owns stock in the corporation and leases a particular apartment from the corporation with rights to occupy the apartment as his or her primary residence. The stock owned by the “tenant” is treated by the IRS as the equivalent to ownership of a primary residence.

Selling stock in a cooperative is treated as the sale of your primary residence. However, if you use your cooperative as rental income property, all the rental deduction and income rules apply and it may qualify for 1031 treatment.

Consider this, as we get this question a lot! Just because you rent out your residence does not necessarily mean the property loses its classification as your primary residence. There are rules for this and you must look at the facts and circumstances of each case to determine this. This presents a real danger if the primary purpose of converting your residence to a rental is to qualify for a subsequent 1031 exchange. Consult your CPA if you are considering selling your condo as a 1031 Exchange.

Related Info: condo, residence, primary, rental, condominium, rules, income


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 have a note secured with real estate, can I 1031 Exchange this for another property?

Real Estate notes  are always excluded from 1031 Exchange treatment and will not qualify.

Sometimes you have property you want to sell yet some of the items do not qualify for 1031 treatment.

A transfer of that property in an exchange transaction will be treated as a sale of that property.

Section 1031 excludes these assets from nontaxable treatment:

Property you hold for personal use such as your primary residence.
Stock in trade and property held primarily for sale such as inventories and real estate held by dealers.
Stocks, bonds, notes, or other securities or evidences of indebtedness such as accounts receivable.
Partnership interests.
Notes
Choses in action.
Certificates of trust or beneficial interest


Related Info: estate, real, secured, notes, treatment, qualify, sale


Can my 1031 Exchange closing fees be deducted from my boot?

Yes. It is possible to deduct from your boot the costs to market your 1031 Exchange property at the time of closing of sale.

When working out the numbers for their 1031 exchange, many tax-payers, real estate pros and investory, overlook the selling expenses as an offset against boot received. Factoring in this offset is critical when the exchange is originated and in the planning stages. Selling expenses paid in connection with a 1031 exchange are treated as cash boot paid and offsets any boot received. Selling expenses include brokerage commissions and other closing costs such as title policy fees, escrow fees, and recording fees.

Related Info: boot, deducted, fees, closing, expenses, selling, paid, offset


Is it possible to 1031 Exchange my personal residence for a business-related property?

The IRS had written some very clear and concise rules regarding whether your personal residence would ever qualify for 1031 Exchange. We have seen several articles recently where some tax guru has worked up a strategy for making this happen. And there may be some circumstances where this might have worked. But the facts are and remain, your personal residence DOES NOT qualify for IRS 1031 Exchange. There are ways to convert your home into a rental but that will take at least 2 tax periods before your property could qualify. Check out our 1031 Exchange Knowledge base article regarding this situation at http://www.realtyexchangers.com/1031_Exchange_Information_Center/Topic_8_-_Exchanges_Involving_Primary_Residence.php#Renting_out_your_old_residence.

Related Info: business-related, residence, personal, qualify, worked, regarding, convert


Can a 1031 Exchange be claimed on an amended return?

If you filed your tax return before the April tax filing deadline, you still have a chance to file your 1031 Exchange. The most important aspect of this issue is to consider the due dates surrounding your 1031 Exchange. You are expected to close sale on your final identified 1031 exchange replacement property on or before 180 days after you sold your relinquished property. However, if you closed on your relinquished property during late November or December, it is very possible that your 180 day deadline falls after the April tax filing deadline. You should know that your closing deadline IS the April tax filing deadline, regardless of when you actual 180 closing date is. If you want to realized all 180 days, you must file an extension with the IRS. So, if you filed your tax return before your April tax filing deadline and before your 180 day deadline, you may still have the option to claim your 1031 Exchange on an amended tax return. The best move is to discuss this with your CPA or tax preparer ASAP! You Tax Advisor is your best ally for this issue.

Related Info: return, amended, claimed, deadline, april, filing, filed, issue


How safe in your money in an escrow account for a 1031 Exchange?

Qualified Escrow Accounts are about the safest type of account you can have when you are working with a Qualified Intermediary (Realty Exchangers), this is because you QI cannot access any of the money without your knowledge and signature. Also, insist that your QI apply FDIC insurance on all of your proceeds. Few QI's offer this service, though Realty Exchangers does. Read more about Fund Security here.

Related Info: account, escrow, money, safe, realty, exchangers, qi's, insurance, fdic, proceeds


What information is requested on Form 8824 for 1031 Exchange?

The following information is requested on IRS Form 8824 for IRS 1031 Exchange. We recommend that you review this with your CPA or tax advisor.
Information on the Like-Kind Exchange


Description of like-kind property given up:
Description of like-kind property received:
Date like-kind property given up was originally acquired (month, day, year)  . . . . . . 3  MM/DD/YYYY
Date you actually transferred your property to other party (month, day, year)   . . . . . 4  MM/DD/YYYY
Date like-kind property you received was identified by written notice to another party (month, day, year). See instructions for 45-day written identification requirement  . . . . . . . 5  MM/DD/YYYY
Date you actually received the like-kind property from other party (month, day, year). See instructions 6  MM/DD/YYYY
Was the exchange of the property given up or received made with a related party, either directly or indirectly (such as through an intermediary)? See instructions. If “Yes,” complete Part II. If “No,” go to Part III  . . . Yes NoPart II Related Party Exchange Information

Name of related party Relationship to you Related party’s identifying number Address (no., street, and apt., room, or suite no., city or town, state, and ZIP code)
During this tax year (and before the date that is 2 years after the last transfer of property that was part of the exchange), did the related party sell or dispose of any part of the like-kind property received from you (or an intermediary) in the exchange or transfer property into the exchange, directly or indirectly (such as through an intermediary), that became your replacement property? . . . . . . . . . . . . . . Yes No
During this tax year (and before the date that is 2 years after the last transfer of property that was part of the exchange), did you sell or dispose of any part of the like-kind property you received?  . . . . . . Yes No
If both lines 9 and 10 are “No” and this is the year of the exchange, go to Part III. If both lines 9 and 10 are “No” and this is not the year of the exchange, stop here. If either line 9 or line 10 is “Yes,” complete Part III and report on this year’s tax return the deferred gain or (loss) from line 24 unless one of the exceptions on line 11 applies.
If one of the exceptions below applies to the disposition, check the applicable box:
a The disposition was after the death of either of the related parties.
b The disposition was an involuntary conversion, and the threat of conversion occurred after the exchange.
c You can establish to the satisfaction of the IRS that neither the exchange nor the disposition had tax avoidance as one of its principal purposes. If this box is checked, attach an explanation (see instructions).
For Paperwork Reduction Act Notice, see page 4 of the instructions.

Part III Realized Gain or (Loss), Recognized Gain, and Basis of Like-Kind Property Received

Caution: If you transferred and received (a) more than one group of like-kind properties or (b) cash or other (not like-kind) property, see Reporting of multi-asset exchanges in the instructions.
Note: Complete lines 12 through 14 only if you gave up property that was not like-kind. Otherwise, go to line 15.
Fair market value (FMV) of other property given up  . . . . . 12
Adjusted basis of other property given up  . . . . . . . . 13
Gain or (loss)  recognized on other property given up. Subtract line 13 from line 12. Report  the gain or (loss) in the same manner as if the exchange had been a sale  . . . . . . . . . 14
Caution: If the property given up was used previously or partly as a home, see Property used as home in the instructions.
Cash  received,  FMV  of  other  property  received,  plus  net  liabilities  assumed  by  other  party, reduced  (but not below zero) by any exchange expenses you incurred (see instructions)  . . 15
FMV of like-kind property you received  . . . . . . . . . . . . . . . . . . . 16
17  Add lines 15 and 16  . . . . . . . . . . . . . . . . . . . . . . . . . 17
18  Adjusted  basis  of  like-kind  property  you  gave  up,  net  amounts  paid  to  other  party,  plus  any exchange expenses not used on line 15 (see instructions)  . . . . . . . . . . . . . 18
Realized gain or (loss).  Subtract line 18 from line 17  . . . . . . . . . . . . . . 19
Enter the smaller of line 15 or line 19, but not less than zero  . . . . . . . . . . . . 20
Ordinary income under recapture rules. Enter here and on Form 4797, line 16 (see instructions)  21
Subtract  line  21  from  line  20.  If  zero  or  less,  enter  -0-.  If  more  than  zero,  enter  here  and  on Schedule D or Form 4797, unless the installment method applies (see instructions)  . . . . 22
Recognized gain.  Add lines 21 and 22  . . . . . . . . . . . . . . . . . . . 23
Deferred gain or (loss). Subtract line 23 from line 19. If a related party exchange, see instructions  . 24
Basis of like-kind property received.  Subtract line 15 from the sum of lines 18 and 23  . . 25Part IV Deferral of Gain From Section 1043 Conflict-of-Interest Sales
Note: This part is to be used only by officers or employees of the executive branch of the Federal Government or judicial officers of the Federal Government (including certain spouses, minor or dependent children, and trustees as described in section 1043) for reporting nonrecognition of gain under section 1043 on the sale of property to comply  with the conflict-ofinterest requirements. This part can be used only if the cost of the replacement property is more than the  basis of the divested property.
Enter  the  number from  the  upper  right  corner  of  your  certificate  of  divestiture. (Do  not  attach  a copy of your certificate. Keep the certificate with your records.)  . . . . . . . . . .
Description of divested property
Description of replacement property
Date divested property was sold (month, day, year)  . . . . . . . . . . . . . . . 29  MM/DD/YYYY
Sales price of divested property (see instructions). . . . . . 30
Basis of divested property  . . . . . . . . . . . . . 31
Realized gain.  Subtract line 31 from line 30  . . . . . . . . . . . . . . . . . 32
Cost of  replacement property purchased within 60 days  after date of sale  . . . . . . . . . . . . . . . . . . . . 33
Subtract line 33 from line 30. If zero or less, enter -0-  . . . . . . . . . . . . . . 34
Ordinary income under recapture rules. Enter here and on Form 4797, line 10 (see instructions)  35
Subtract  line  35  from  line  34.  If  zero  or  less,  enter  -0-.  If  more  than  zero,  enter  here  and  on Schedule D or Form 4797 (see instructions)  . . . . . . . . . . . . . . . . . 36
Deferred gain.  Subtract the sum of lines 35 and 36 from line 32  . . . . . . . . . . 37
Basis of replacement property.  Subtract line 37 from line 33  . . . . . . . . . . . 38

Related Info: 8824, form, requested, information, line, like-kind, instructions, gain, party, date


What should I know about buying a ranch with a 1031 Exchange

If you are thinking about purchasing a ranch with your 1031 exchange proceeds, you should first, figure out if the property qualifies for for 1031 Exchange. Is the property used as a business, such as raising cattle, and are any of the buildings used as a rental property. If any of these questions are true, then perhaps a portion of the property would qualify for 1031 Exchange. Review the property with your attorney and your CPA. Figure out the basis of the property and whether a 1031 Exchange for this property is a good trade.

Related Info: ranch, buying, figure, portion, perhaps, questions, qualify, review


How does my mortgage transfer in a 1031 Exchange?

You take on their mortgage and they take yours.

In a 1031 exchange, the assumption of a liability by the other party (or transfer of your property subject to a liability) is treated as boot received by you. It's called mortgage relief. In figuring your net mortgage relief, you may offset against it your assumption of a liability (or transfer of property subject to a liability).

The assumption of a liability or the transfer of a property subject to a liability is treated as boot.

If the other party assumes your liability—or your property transferred subject to the liability—you have received boot. You will be treated as if you received cash in the amount of the liability. The party assuming the liability, or acquiring the property subject to the liability, gives boot.

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: transfer, mortgage, liability, boot, treated, party






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