1031 HELP
1 Ask us a 1031 Question
2 1031 Exchange FAQ
3 What is a 1031 Exchange?
4 What do I need to know?
5 What does a 1031 cost?
6 How do I get started?
7 Step-by-step instructions
8 Set-up a 1031 Exchange
9 FREE 1031 Procedure Manual
10 1031 Exchange Info Center
11 Find Local 1031 Professionals
12 Find Replacement Properties
1031 Exchange FAQ - ATTORNEY
Quick 1031 FAQ Search
1031 Question Categories
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.
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
I bought a house in June 2010 and told the bank that it is for a primary residence. However, I have not lived in the house yet. Does it qualify for a 1031 exchange?
Hi there. Remember that a 1031 Exchange property must be an investment property, such as land or an income producing property such as a rental home. In order for you home to match the 1031 Criteria, you must show you collected rents from it for 2 tax periods. Some QI's tell customer that it is 2 years but this is not exactly correct. 2 tax periods are 2 tax periods, which means if you bought in June of 2009 by January of 2011, you can show you collected rents for 2 tax periods. The first tax period being part of 2009 and the second tax period being all of 2010. In general, please review our 1031 Exchange Knowledge Base for general information AND consult your CPA or Tax attorney for specifics pertaining to your local area. You can find local CPA's and Tax Attorneys on our web site at http://www.realtyexchangers.com/1031_Exchange/index.html.
Related Info: house, residence, lived, qualify, primary, bank, periods, collected, show, period, local, general
How do I figure out if the property I am trying to sell Qualifies for 1031 Exchange?
Answer: Check out our 1031 Exchange Knowledge Base article regarding the 4 classifications of Real Estate. The IRS sees real estate as 4 classifications, Business Use, Investment, Personal & Primarily held for sale. Real Estate held for Business Use and Investment (usually Land) qualify for 1031 Exchange Treatment. Real Estate held for personal use (such as your home!) and Real Estate that you bought with the intention of "flipping" do not qualify for 1031 Exchange. An easy measure is to ask yourself does this property produce an income? If it does you probably have a good chance of using it for a 1031 Exchange. A discussion with your CPA or tax attorney is best way to determine 1031 Exchange Eligibility.
Related Info: qualifies, figure, real, estate, business, investment, personal, qualify
Frequently Asked 1031 Exchange Question
Question: How do I figure out if the property I am trying to sell Qualifies for 1031 Exchange?
Answer: Check out our 1031 Exchange Knowledge Base article regarding the 4 classifications of Real Estate. The IRS sees real estate as 4 classifications, Business Use, Investment, Personal & Primarily held for sale. Real Estate held for Business Use and Investment (usually Land) qualify for 1031 Exchange Treatment. Real Estate held for personal use (such as your home!) and Real Estate that you bought with the intention of "flipping" do not qualify for 1031 Exchange. An easy measure is to ask yourself does this property produce an income? If it does you probably have a good chance of using it for a 1031 Exchange. A discussion with your CPA or tax attorney is best way to determine 1031 Exchange Eligibility.
Answer: Check out our 1031 Exchange Knowledge Base article regarding the 4 classifications of Real Estate. The IRS sees real estate as 4 classifications, Business Use, Investment, Personal & Primarily held for sale. Real Estate held for Business Use and Investment (usually Land) qualify for 1031 Exchange Treatment. Real Estate held for personal use (such as your home!) and Real Estate that you bought with the intention of "flipping" do not qualify for 1031 Exchange. An easy measure is to ask yourself does this property produce an income? If it does you probably have a good chance of using it for a 1031 Exchange. A discussion with your CPA or tax attorney is best way to determine 1031 Exchange Eligibility.
Related Info: asked, frequently, estate, real, classifications, personal, qualify, investment
I own my mom's house, never lived in it and want to 1031 Exchange it into something else, now that she is gone. Can I do this?
Answer: This is a very tricky scenario. Be sure to discuss this at length with your CPA and/or Tax Attorney. Be sure to put your situation to this test. Did you collect rents from your mother while she lived in the house? If not, the IRS could view your mother's place as a second home for you, though you never lived there. Be advised that only income producing property or investment property qualifies for 1031 Exchange Treatment. If you mom's home wasn't producing an income from rents (and these rents must be on par with average rents for the area, not say $1 dollar per month) then you would have a difficult time demonstrating that your mother's house was a 1031 Exchange property.
Related Info: something, lived, house, mom's, rents, income, producing, mother's
I bought a house in june 2010 and told the bank that it is for primary resident. However, I have not lived in the house yet. Do it qualify for a 1031 exchange?
Hi there. Remember that a 1031 Exchange property must be an investment property, such as land or an income producing property such as a rental home. In order for you home to match the 1031 Criteria, you must show you collected rents from it for 2 tax periods. Some QI's tell customer that it is 2 years but this is not exactly correct. 2 tax periods are 2 tax periods, which means if you bought in June of 2009 by January of 2011, you can show you collected rents for 2 tax periods. The first tax period being part of 2009 and the second tax period being all of 2010. In general, please review our 1031 Exchange Knowledge Base for general information AND consult your CPA or Tax attorney for specifics pertaining to your local area. You can find CPA's and Tax Attorney
Related Info: house, resident, lived, qualify, primary, bank, periods, rents, show, general, 2009, period
I bought a house in june 2010 and told the bank that it is for a primary residence. However, I have not lived in the house yet. Does it qualify for a 1031 exchange?
Hi there. Remember that a 1031 Exchange property must be an investment property, such as land or an income producing property such as a rental home. In order for you home to match the 1031 Criteria, you must show you collected rents from it for 2 tax periods. Some QI's tell customer that it is 2 years but this is not exactly correct. 2 tax periods are 2 tax periods, which means if you bought in June of 2009 by January of 2011, you can show you collected rents for 2 tax periods. The first tax period being part of 2009 and the second tax period being all of 2010. In general, please review our 1031 Exchange Knowledge Base for general information AND consult your CPA or Tax attorney for specifics pertaining to your local area. You can find local CPA's and Tax Attorneys on our web site at http://www.realtyexchangers.com/1031_Exchange/index.html.
Related Info: house, residence, lived, qualify, primary, bank, periods, collected, show, period, local, general
How many replacement properties can I have?
There are 3 rules:
The one most people use is the 3-Property Rule because they can identify 3 1031 Exchange Replacement Properties without regard to fair market values of the properties. You figure fair market value of Replacement Property as of the end of the identification period.
The next rule is the 200 percent rule which allows you to identify any number of properties as long as their total fair market value does not exceed 200 percent of the total fair market value of all Relinquished Properties. You figure fair market value of Relinquished Properties as of the date you transfer them.
The final rule is the 95 percent rule which allows you to 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.
Beware of the 200 percent rule and the 95 percent rule. If you are choosing to follow these rules, we suggest you get help from your CPA or Tax Attorney. If they are not conducted properly as of the end of the identification period and you have identified more properties as replacement properties than permitted, you are treated as if no Replacement Property has been identified. Which means the IRS could decide that no 1031 Exchange occurred and you would end up paying the capital gains tax.
This is why most people follow the 3 property rule, it is easiest to understand with lessor risk.
The one most people use is the 3-Property Rule because they can identify 3 1031 Exchange Replacement Properties without regard to fair market values of the properties. You figure fair market value of Replacement Property as of the end of the identification period.
The next rule is the 200 percent rule which allows you to identify any number of properties as long as their total fair market value does not exceed 200 percent of the total fair market value of all Relinquished Properties. You figure fair market value of Relinquished Properties as of the date you transfer them.
The final rule is the 95 percent rule which allows you to 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.
Beware of the 200 percent rule and the 95 percent rule. If you are choosing to follow these rules, we suggest you get help from your CPA or Tax Attorney. If they are not conducted properly as of the end of the identification period and you have identified more properties as replacement properties than permitted, you are treated as if no Replacement Property has been identified. Which means the IRS could decide that no 1031 Exchange occurred and you would end up paying the capital gains tax.
This is why most people follow the 3 property rule, it is easiest to understand with lessor risk.
Related Info: properties, replacement, rule, market, fair, value
Can a trust holding a property do a 1031 exchange? There are 3 beneficiaries. Can there be 3 separate properties after the exchange?
Trusts can do a 1031 Exchange, we do them all of the time, but like LLC's and LTD's, they have to be executed as a single entity. If the goal is to purchase 3 separate properties for the 3 beneficiaries, we recommend selling the property as a single trust, purchasing the 3 properties as a single trust, then dissolving the trust and splitting the properties/assets among the beneficiaries.
A trust cannot separate the properties among the individuals.
For further information, please review this with your attorney or CPA.
A trust cannot separate the properties among the individuals.
For further information, please review this with your attorney or CPA.
Related Info: properties, beneficiaries, holding, single, among, properties/assets, dissolving
Can I 1031 Exchange a business?
The property that is owned by your business is subject to 1031 Exchange so long as you are exchanging the real property. The best advice is to consult your attorney or CPA regarding the property to see if it qualifies. It's also a good idea to determine how it will divided among your partners, if any. The nature of the partnership determines how the proceeds are split. Also be aware that the partnership must conduct the 1031 Exchange, not the individuals.
Related Info: business, partnership, nature, partners, among, determines, proceeds
How do I pay Realtor commissions if I 1031 exchange one property for another?
Just like most property sales that include a closing agent, whether it be a Title/Escrow Company, Attorney or CPA, the commissions that get paid to Realtors are considered part of the closing costs. When you execute a 1031 Exchange all of the fees that are incurred for the property sale including, the title insurance, deed, broker's fees, state fees, tax, qualified intermediary fees, outstanding mortgages, liens and whatever else needs to be settled at the close of sale are paid from the gross sale proceeds. Once all of the debts are paid, the remaining net proceeds become the proceeds that can then be used to purchase your 1031 Exchange Replacement Properties.
Related Info: commissions, realtor, fees, proceeds, sale, paid, closing, whatever
I own property in Puerto Rico and want to 1031 Exchange it for property in Wisconsin. Can I do a 1031 Exchange this way?
The location of properties being exchanged is very important. Real property located outside the United States does not qualify as a 1031 Exchange property if exchanged for real property located in the United States. In the US, real property means property located within the fifty states and the District of Columbia. Property located in Guam, Puerto Rico, and U.S. possessions are treated as foreign real estate and do not qualify.
However, real estate located in the U.S. Virgin Islands may qualify for §1031 treatment when traded for U.S. real estate. Please see your CPA or attorney for more information in your particular case!
However, real estate located in the U.S. Virgin Islands may qualify for §1031 treatment when traded for U.S. real estate. Please see your CPA or attorney for more information in your particular case!
Related Info: wisconsin, rico, puerto, real, located, estate, states, qualify, exchanged
I want to buy a bed and breakfast on a piece of property that hasn't been built. How does that work for a 1031?
Yes with a 1031 exchange you may exchange for real property that has yet to be built. A transfer will still qualify for §1031 treatment if the new construction is identified within the 45-day period, and received within the 180-day exchange period.
Please NOTE and we can't recommend this enough, be sure to carefully identify this property. Include the legal description of the underlying ground and as much other description as possible for the property to be constructed. Also, the new construction must be completed and received in substantially the same form as described in the identification documents.
Another important stipulation is that you cannot exchange for services, so don't expect to be compensated for any work or materials that you use to "construct" this property.
Partially completed real property can be received in a like kind exchange if properly identified.
As always, we encourage you to discuss this openly with your CPA or attorney who are always the authority when it come to 1031 exchange in your area.
Please NOTE and we can't recommend this enough, be sure to carefully identify this property. Include the legal description of the underlying ground and as much other description as possible for the property to be constructed. Also, the new construction must be completed and received in substantially the same form as described in the identification documents.
Another important stipulation is that you cannot exchange for services, so don't expect to be compensated for any work or materials that you use to "construct" this property.
Partially completed real property can be received in a like kind exchange if properly identified.
As always, we encourage you to discuss this openly with your CPA or attorney who are always the authority when it come to 1031 exchange in your area.
Related Info: work, hasn't, breakfast, completed, period, description, construction, identified, real
How do I 1031 Exchange a duplex when I live in one of the units?
A 1031 Exchange of a rental property qualifies under the Real Estate Held for Business use provision of the IRS's 1031 Exchange Statue. Whether you live in one the units doesn't matter in terms of qualifying for a 1031 exchange. What is important is that you get help from your CPA or Tax Attorney when writing the Purchase and Sale Agreement with your buyer. A lot of this depends on how your property is deeded. If each unit is deeded separately, this is a no-brainer. If they are all under the same deed, you will need to do some additional wrangling in order to split out the deeds. But, yes, 1031 Exchanging a duplex is possible even if you are living in one of the units. We encourage you to discuss this with your CPA or Attorney for more information.
Related Info: units, live, duplex, deeded, attorney, discuss, deed, additional
If my replacement property is a rental how long does it have to remain a rental before it can be converted into my primary residence without losing my §1031 exchange benefits?
There are no hard rules here. Just show IRS your intent to use your replacement property as a rental. Most of tax attorneys we talk to feel that if the property shows up as a rental on two or more consecutive tax returns you will have shown intent.
Related Info: rental, losing, benefits, residence, converted, remain, intent, consecutive, returns, shown, shows
You talk a lot about 1031 exchange of real estate. Can I 1031 other property?
Yes. If you have property held for productive use in a trade or business, or for investment purposes, it may qualify for 1031 Exchange treatment under the IRS Section 1031. Lots of 1031 exchanges involve "multi-assets", which include real property and personal property. Discuss this with your CPA or attorney and see how it applies in your particular case.
Related Info: estate, real, personal, include, multi-assets, discuss, attorney
How do I do a 1031 Exchange?
We've been reading countless daily internet articles explaining the benefits and the whys of an IRS 1031 Exchange. The reasons why someone should do a 1031 Exchange are quite simple, the taxpayer wants to defer their capital gains tax. But what about how? How do you do a 1031 Exchange?
1. Own Qualified Real Estate.
Make sure you have real estate that qualifies for 1031 Exchange. Make sure you or your business owns either investment real estate, such as land. Or, real estate held for business use, such as a rental property or an office complex. Careful consideration of your property must be taken into account. Do not be fooled by individuals telling you you can 1031 Exchange your primary residence or property you purchased yesterday with the intent to flip tomorrow. This is a horrible trap. Consult your CPA for more information.
2. Find a buyer
Realty Exchangers has two very popular venues for finding buyers of your property and finding 1031 Exchange pros who know how to make all happen. Visit our 1031 Exchange Property Search Engine to find looking at http://www.exchangersclearinghouse.com. You can also look up a local professional with our 1031 Exchange Pro Directory located at http://www.realtyexchangers.com/1031_Exchange/index.html. Both of these services are free!
3. Accept the and write up a purchase and sale agreement.
Work with your buyer and attorney to make sure all parties are happy with the offer and that all contingencies are considered. Be sure to inform the buyer that this is a 1031 Exchange.
4. Contact a closing company.
Finding the right closing/title company can be a chore. Your attorney or real estate agent may have some ideas of which closing company to use, better to find one that knows how to handle 1031 Exchanges.
5. Setup a 1031 Exchange with a Qualified Intermediary. (QI)
Choosing your 1031 Exchange QI is important. You need one with experience and integrity. Realty Exchangers has been providing 1031 Exchange QI services since 1989. In over 20 years, we helped thousands of tax payers defer their capital gains tax. We are the experts at making the transaction simple and easy.
6. Close sale on your property and transfer your proceeds into your QI's trust.
When you sale closes, you closing company is directed to transfer the proceeds from your 1031 exchange into your QI's trust account. Here the funds will sit while you search for your 1031 Exchange Replacement Property.
7. Know your 45 day and 180 day deadlines.
Soon as the sale closes on your Relinquished Property the clock starts ticking on securing qualified Replacement Properties.
45 day Identification Period. The IRS stipulates that you have 45 days to officially "Identify" your replacement properties. This must be done in writing and Realty Exchangers provides you with the forms necessary.
180 Closing Deadline. The IRS also stipulates that you have 180 to close sale on ALL of your identified replacement properties.
8. Identify your Replacement Properties.
Use the same web site tools mentioned in number 2 above. These must be of like-kind, meaning they must follow the same qualifications test as mention in step 1. The number of Replacement Properties you can chose, depends on which rules you want to follow. The 3 property rule, the 200% rule or the 95% rule. The most popular is the 3 property rule because it is the easiest for most people to understand.
9. Close on your Replacement Properties.
Essentially, this step is the same as steps 3 and 4, mentioned above.
That is all there is to it.
Realty Exchangers takes pride in keeping this process as clean and simple as possible. Only when you attempt to circumvent the above steps do you invite trouble with your 1031 Exchange. You have two options with the IRS. Pass or Fail. If you follow the rules, your Exchange will pass and you will defer your capital gains. Failure to follow the rules or attempts to circumvent the process creates issues that can force your Exchange to collapse.
And always, if you have questions, the best option is to call Realty Exchangers at 800-570-1031.
1. Own Qualified Real Estate.
Make sure you have real estate that qualifies for 1031 Exchange. Make sure you or your business owns either investment real estate, such as land. Or, real estate held for business use, such as a rental property or an office complex. Careful consideration of your property must be taken into account. Do not be fooled by individuals telling you you can 1031 Exchange your primary residence or property you purchased yesterday with the intent to flip tomorrow. This is a horrible trap. Consult your CPA for more information.
2. Find a buyer
Realty Exchangers has two very popular venues for finding buyers of your property and finding 1031 Exchange pros who know how to make all happen. Visit our 1031 Exchange Property Search Engine to find looking at http://www.exchangersclearinghouse.com. You can also look up a local professional with our 1031 Exchange Pro Directory located at http://www.realtyexchangers.com/1031_Exchange/index.html. Both of these services are free!
3. Accept the and write up a purchase and sale agreement.
Work with your buyer and attorney to make sure all parties are happy with the offer and that all contingencies are considered. Be sure to inform the buyer that this is a 1031 Exchange.
4. Contact a closing company.
Finding the right closing/title company can be a chore. Your attorney or real estate agent may have some ideas of which closing company to use, better to find one that knows how to handle 1031 Exchanges.
5. Setup a 1031 Exchange with a Qualified Intermediary. (QI)
Choosing your 1031 Exchange QI is important. You need one with experience and integrity. Realty Exchangers has been providing 1031 Exchange QI services since 1989. In over 20 years, we helped thousands of tax payers defer their capital gains tax. We are the experts at making the transaction simple and easy.
6. Close sale on your property and transfer your proceeds into your QI's trust.
When you sale closes, you closing company is directed to transfer the proceeds from your 1031 exchange into your QI's trust account. Here the funds will sit while you search for your 1031 Exchange Replacement Property.
7. Know your 45 day and 180 day deadlines.
Soon as the sale closes on your Relinquished Property the clock starts ticking on securing qualified Replacement Properties.
45 day Identification Period. The IRS stipulates that you have 45 days to officially "Identify" your replacement properties. This must be done in writing and Realty Exchangers provides you with the forms necessary.
180 Closing Deadline. The IRS also stipulates that you have 180 to close sale on ALL of your identified replacement properties.
8. Identify your Replacement Properties.
Use the same web site tools mentioned in number 2 above. These must be of like-kind, meaning they must follow the same qualifications test as mention in step 1. The number of Replacement Properties you can chose, depends on which rules you want to follow. The 3 property rule, the 200% rule or the 95% rule. The most popular is the 3 property rule because it is the easiest for most people to understand.
9. Close on your Replacement Properties.
Essentially, this step is the same as steps 3 and 4, mentioned above.
That is all there is to it.
Realty Exchangers takes pride in keeping this process as clean and simple as possible. Only when you attempt to circumvent the above steps do you invite trouble with your 1031 Exchange. You have two options with the IRS. Pass or Fail. If you follow the rules, your Exchange will pass and you will defer your capital gains. Failure to follow the rules or attempts to circumvent the process creates issues that can force your Exchange to collapse.
And always, if you have questions, the best option is to call Realty Exchangers at 800-570-1031.
Related Info: , replacement, properties, estate, exchangers, sale, real
Can I 1031 Exchange a property that I already sold and purchased?
1031 Exchange only works with real estate properties for which you have not closed sale. This is why timing is so important. If you have already written your purchase and sale agreement on some business or investment property that you own and are now beginning to work toward a closing with a Title/Closing Company or an attorney, NOW is the time to start your 1031 Exchange, waiting until after you close sale is TOO LATE!
Related Info: purchased, sale, title/closing, closing, work, company, attorney
I was told that I could back-date my documents for a 1031 Exchange. How do I do this?
Don't. Do not. Please do not to this type of advice ! Backdating documents in this type of transaction to qualify for a 1031 Exchange benefit you are not entitled to is illegal and treated as fraud by the IRS. Please consult your attorney about the consequences of this action.
Related Info: documents, back-date, type, fraud, treated, consult, attorney, action
I heard I can take back cash from my 1031 Exchange proceeds. Is that true?
There are two opportunities during your 1031 Exchange where you can take back cash without disrupting the flow of the exchange. The first opportunity is at the closing of your relinquished property. During this time you may take back cash before the proceeds are transferred to your QI's trust account. The other opportunity when you have closed sale on all of your Identified Replacement Properties.
HOWEVER. Please note! The liquid cash that you receive from your 1031 Exchange is called "Boot Received" and may be subject to the capital gains tax. Careful planning of "boot received" should be discussed at length with your CPA or tax attorney.
HOWEVER. Please note! The liquid cash that you receive from your 1031 Exchange is called "Boot Received" and may be subject to the capital gains tax. Careful planning of "boot received" should be discussed at length with your CPA or tax attorney.
Related Info: proceeds, cash, opportunity, boot, liquid, receive, properties
If I sell my 1031 Exchange relinquished property in 2010 and purchase my replacement property in 2011, what year do I send the IRS 8824 form?
That is a very common 1031 Exchange question for this time of year. Luckily, the IRS is very specific about this. You need to be sure to file your IRS Form 8824 for the same tax year that you sold your relinquished property. Also, be sure to discuss this at length with your CPA or Tax Attorney.
Related Info: send, 8824, form, 2011, replacement, 2010, relinquished, discuss, length, attorney
I want to 1031 exchange a property that I own in Pennsylvania for one in Las Vegas, does this make a difference?
The only issue you should be concerned with when you want to 1031 Exchange Real Estate is if the properties qualify as like-kind with the IRS. Whether you exchange a property in one state with a property from another state does not matter as the section 1031 exchange is an federal action with the IRS. We always recommend that you review your situation with your CPA or tax attorney. These pros are knowledge of the laws in your specific state and city. Sometimes there are rules in various regions that your CPA or attorney can help you with.
Related Info: difference, vegas, pennsylvania, state, attorney, pros, situation, review, knowledge
Can land that is held in an irrevocable trust qualify for a 1031 exchange?
Even if the buyer's money would be put into a trust and the trustees would assume the trusteeship of the other's trust and the beneficiaries of each trust would be swapped. There is not much we can do for you with a 1031 Exchange. The biggest problem with trusts, is that they get involved in so many legal issues. And since there are so many different kinds of trusts, with so many unique variations, it is very difficult to answer you question without knowing all of the details of your particular case. Since we are barred from providing legal advice, we recommend you discuss this with your attorney or the trust's attorney.
Related Info: qualify, irrevocable, land, attorney, trusts, legal, particular, knowing, difficult
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
What is a 1031 Exchange Qualified Intermediary?
A Qualified Intermediary is a person (or company) who, for a fee, acts to facilitate the 1031 exchange by entering into an agreement with you for the exchange of properties.
An intermediary is treated as acquiring and transferring property if:
The intermediary acquires and transfers legal title to that property.
The intermediary (either on its own behalf or as the agent of any party to the transaction) enters into an agreement with a person other than the exchanger for the transfer of the Relinquished Property to that person. Under the agreement, the intermediary transfers the Relinquished Property to that person.
The intermediary (either on its own behalf or as the agent of any party to the transaction) enters into an agreement with the owner of the Replacement Property for the transfer of that property. Under the agreement, the intermediary transfers the Replacement Property to the exchanger. Solely for these purposes, the intermediary is treated as entering into an agreement if the rights of a party to the agreement are assigned to the intermediary and all parties to that agreement are notified in writing of the assignment on or before the date of the relevant transfer of property.
The exchanger or a disqualified person cannot qualify as qualified intermediaries for their own exchange. A person or company is NOT a Qualified Intermediary 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.
Furthermore, performance of routine financial, title insurance, escrow, trust services by a financial institution, title insurance company, or escrow company is not taken into account.
Here are some examples to illustrate the disqualified person definition. In all examples, Exchanger enters into an exchange agreement with Jones to retain Jones to facilitate an exchange of real property Happy Acres.
Jones is Exchanger’s accountant and has rendered accounting services other than with respect to §1031 exchanges of property to Exchanger within the 2-year period ending on May 17, 1991. Jones is a disqualified person. If Jones had not acted as Exchanger’s accountant within the 2-year period ending May 17, 1991 or if Jones had acted as Exchanger’s accountant within that period only with respect to Section 1031 exchanges, Jones would not be a disqualified person.
Jones is engaged in the business of acting as an intermediary to facilitate deferred exchanges. Jones is a wholly owned subsidiary of an escrow company that has performed routine escrow services for Exchanger in the past. Jones has previously been retained by Exchanger to act as an intermediary in prior §1031 exchanges. Jones is not a disqualified person notwithstanding the intermediary services previously provided by Jones to Exchanger and notwithstanding the combination of Jones’s relationship to the escrow company and the escrow services previously provided by the escrow company to Exchanger.
Jones, Inc. is a corporation only engaged in the business of acting as an intermediary to facilitate deferred exchanges. Each of 10 law firms own 10 percent of the outstanding stock of Jones, Inc. One of the 10 law firms that own 10 percent of Jones, Inc. is Mason and Mason. Eileen is the managing partner of Mason and Mason and is the president of Jones, Inc. Eileen, in her capacity as a partner in Mason and Mason, has also rendered legal advice to Exchanger within the 2-year period ending on May 17, 1991, on matters other than §1031 exchanges.
Eileen and Mason and Mason are disqualified persons. Jones, Inc., however, is not a disqualified person because neither Eileen or Mason and Mason own, directly or indirectly, more than 10 percent of the stock of Jones, Inc. Eileen’s participation in the management of Jones, Inc. does not make her a disqualified person.
Here’s a transaction where everything went wrong. It’s an excellent example of why an exchanger should retain the services of a good Qualified Intermediary and tax advisor before entering into a §1031 exchange. Especially one involving related taxpayers.
In FSA (Field Service Advice) 200048021, the IRS said a father who sold his property to his children couldn’t qualify for nonrecognition of gain under §1031(a) on the exchange of his property for an interest in another property.
Here’s what happened—the father wanted to sell his property to his four children. They drew up an exchange agreement for a like-kind exchange, but failed to identify the property being exchanged. The father then deeded the property to the children, and the children executed a promissory note designating their father as the lender and another individual as the escrow agent. The children did not own any replacement property, so the father located it for them. Only then did the father then contacted a Qualified Intermediary for the exchange.
In the meantime however, the father actually received the deed to the property directly from the owner. The children later sold small portions of the property they received from their father to unrelated third parties. The IRS said the father was not entitled to the benefits of §1031.
First, the escrow agent didn't satisfy the definition of a Qualified Intermediary. Second, the father failed to unambiguously identify the replacement property. Third, the father was in constructive receipt of the proceeds from the sale of his relinquished property before receiving his replacement property. This violated the constructive receipt rules since the father never did use the safe harbor rules available from a Qualified Intermediary.
The IRS said the father's transfer to his children did not even qualify as a §1031 exchange at all, even as an exchange between related persons because the father did not exchange property with his children, but rather sold property to them.
An intermediary is treated as acquiring and transferring property if:
The intermediary acquires and transfers legal title to that property.
The intermediary (either on its own behalf or as the agent of any party to the transaction) enters into an agreement with a person other than the exchanger for the transfer of the Relinquished Property to that person. Under the agreement, the intermediary transfers the Relinquished Property to that person.
The intermediary (either on its own behalf or as the agent of any party to the transaction) enters into an agreement with the owner of the Replacement Property for the transfer of that property. Under the agreement, the intermediary transfers the Replacement Property to the exchanger. Solely for these purposes, the intermediary is treated as entering into an agreement if the rights of a party to the agreement are assigned to the intermediary and all parties to that agreement are notified in writing of the assignment on or before the date of the relevant transfer of property.
The exchanger or a disqualified person cannot qualify as qualified intermediaries for their own exchange. A person or company is NOT a Qualified Intermediary 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.
Furthermore, performance of routine financial, title insurance, escrow, trust services by a financial institution, title insurance company, or escrow company is not taken into account.
Here are some examples to illustrate the disqualified person definition. In all examples, Exchanger enters into an exchange agreement with Jones to retain Jones to facilitate an exchange of real property Happy Acres.
Jones is Exchanger’s accountant and has rendered accounting services other than with respect to §1031 exchanges of property to Exchanger within the 2-year period ending on May 17, 1991. Jones is a disqualified person. If Jones had not acted as Exchanger’s accountant within the 2-year period ending May 17, 1991 or if Jones had acted as Exchanger’s accountant within that period only with respect to Section 1031 exchanges, Jones would not be a disqualified person.
Jones is engaged in the business of acting as an intermediary to facilitate deferred exchanges. Jones is a wholly owned subsidiary of an escrow company that has performed routine escrow services for Exchanger in the past. Jones has previously been retained by Exchanger to act as an intermediary in prior §1031 exchanges. Jones is not a disqualified person notwithstanding the intermediary services previously provided by Jones to Exchanger and notwithstanding the combination of Jones’s relationship to the escrow company and the escrow services previously provided by the escrow company to Exchanger.
Jones, Inc. is a corporation only engaged in the business of acting as an intermediary to facilitate deferred exchanges. Each of 10 law firms own 10 percent of the outstanding stock of Jones, Inc. One of the 10 law firms that own 10 percent of Jones, Inc. is Mason and Mason. Eileen is the managing partner of Mason and Mason and is the president of Jones, Inc. Eileen, in her capacity as a partner in Mason and Mason, has also rendered legal advice to Exchanger within the 2-year period ending on May 17, 1991, on matters other than §1031 exchanges.
Eileen and Mason and Mason are disqualified persons. Jones, Inc., however, is not a disqualified person because neither Eileen or Mason and Mason own, directly or indirectly, more than 10 percent of the stock of Jones, Inc. Eileen’s participation in the management of Jones, Inc. does not make her a disqualified person.
Here’s a transaction where everything went wrong. It’s an excellent example of why an exchanger should retain the services of a good Qualified Intermediary and tax advisor before entering into a §1031 exchange. Especially one involving related taxpayers.
In FSA (Field Service Advice) 200048021, the IRS said a father who sold his property to his children couldn’t qualify for nonrecognition of gain under §1031(a) on the exchange of his property for an interest in another property.
Here’s what happened—the father wanted to sell his property to his four children. They drew up an exchange agreement for a like-kind exchange, but failed to identify the property being exchanged. The father then deeded the property to the children, and the children executed a promissory note designating their father as the lender and another individual as the escrow agent. The children did not own any replacement property, so the father located it for them. Only then did the father then contacted a Qualified Intermediary for the exchange.
In the meantime however, the father actually received the deed to the property directly from the owner. The children later sold small portions of the property they received from their father to unrelated third parties. The IRS said the father was not entitled to the benefits of §1031.
First, the escrow agent didn't satisfy the definition of a Qualified Intermediary. Second, the father failed to unambiguously identify the replacement property. Third, the father was in constructive receipt of the proceeds from the sale of his relinquished property before receiving his replacement property. This violated the constructive receipt rules since the father never did use the safe harbor rules available from a Qualified Intermediary.
The IRS said the father's transfer to his children did not even qualify as a §1031 exchange at all, even as an exchange between related persons because the father did not exchange property with his children, but rather sold property to them.
Related Info: , jones, person, exchanger, father, agreement, mason
