1031 Options
I recently relocated, purchaseing a new home which I homestead. I plan to use 1031 to avoid the capitol gains. I am purchasing investment property. As I sell other properties can I 1031 each property? Or, due to the fact that I 1031 my homestead property can i no longer take advantage of 1031 exchanges? My question is can I 1031 properties individually or do I need to purchase each property as a seperate entity (LLC, S-corp, etc).
This is not my area of expertese, but my understanding is that you can only do a 1031 between like kind investments- i.e. between one investment property and another. A homestead property would not be eligible as a relinquishment or replacement property. However, if you have occupied the propertyyou sold for two out of the last five years you can use the homestead exemption and avoid capital gains on the profits on your primary residence.
I do not think there is a limit on how many investment properties you can use the 1031 exchange for.
Chris
Homesteading your personal residence has nothing to do with a 1031 exchange. You can do a 1031 exchange for like kind investment properties and there is a very liberal interpretation for like kind. You can exchange one for many or many for one or many for many, however there are restrictions. There are three choices for doing a 1031 that you might look up on the internet. There is the 200% rule, the three property rule and the 95% rule.
What website would you reccomend for 1031 research?
Just do a google search on 1031 and you will get plenty of hits. If you have specific questions I may be able to answer them. There are other TCI members who are also familiar with 1031exchanges. Bill Exeter is a qualified intermediary and has a company that specializes in exchanges in Southern CA. He may also weigh in on some of your questions.
This is the first I have heard of a "reverse" exchange, in years of reading these forums. Very interesting.
Thank you, newkid!
Chris
Just an fyi -- my exchange intermediary cautioned me that the reverse exchange fees are approx. 4x higher because of the complexity and the work involved. Good info. to be aware of/research before you think your strategy thru.
Reverse exchanges are more expensive, largely because one needs to close on & fund the replacement property before the relinquished property is exchanged, and hence the funds are received for that.
We are currently considering doing a reverse exchange for construction on a lot. There would be one or two relinquished properties which would help fund the construction.
The 180 days is the safe harbor rule of the IRS. Our exchange company says many people do it beyond that time period.
Ann
Ann
Mat3Sigma,
I think you misunderstood what you were told. The 180 day rule for the exchange is inviolate. If you have not taken possession of your replacement property before the 180 day exchange window closes, the exchange fails.
Yes it is possible for your construction to take longer than 180 days to complete and often does. The exchange requirement here is that you take possession of a replacement property of equal or greater value before the exchange window closes.
There is nothing which says the construction has to be 100% completed. If your exchange window is about to close, you still preserve the tax-deferred exchange if you can take possession of a substantially completed project as long as the value of the property at that stage of completion exceeds the value of your relinquished property.
Quote:
On 2007-12-09 13:22, NewKidInTown3 wrote:
Mat3Sigma,
I think you misunderstood what you were told. The 180 day rule for the exchange is inviolate. If you have not taken possession of your replacement property before the 180 day exchange window closes, the exchange fails.
Yes it is possible for your construction to take longer than 180 days to complete and often does. The exchange requirement here is that you take possession of a replacement property of equal or greater value before the exchange window closes.
There is nothing which says the construction has to be 100% completed. If your exchange window is about to close, you still preserve the tax-deferred exchange if you can take possession of a substantially completed project as long as the value of the property at that stage of completion exceeds the value of your relinquished property.
Hi! This is true for delayed exchanges. I was told a month or so ago about the safe harbor of 180 days for reverse exchanges, however. But it appears a moot point as I see the website (www.1031cpas.com) now says this has been stopped & it is indeed 180 days now.
ann
Yes it is possible. For the exchange to be fully tax deferred, the value of the replacement property (or properties) must equal or exceed the value of the relinquished property (or properties) and all of your equity in the relinquished property (or properties) must be reinvested into the replacement property (or properties).
The 180 day exchange window opens when you settle on the sale of the first relinquished property. [ Edited by NewKidInTown3 on Date 12/15/2007 ]
Thank you, newkid.
I just wanted to clarify the 180 day issue in terms of a reverse 1031 exchange.
Rev. Proc. 2000-37 provides guidance on how to structure reverse 1031 exchanges using certain safe harbor provisions. They are only safe harbor provisions. These are referred to as Safe Harbor Reverse 1031 Exchanges.
It is possible to structure non-safe-harbor reverse 1031 exchanges, but there is no guidance available from the IRS, the structure is much different that under Rev. Proc. 2000-37 and the costs are significantly higher than safe-harbor reverse 1031 exchanges.
You can not start off with a safe-harbor reverse 1031 exchange and then switch to a non-safe-harbor structure.
[addsig]