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1031 exchange advice?

Posted by c9pilot (My Page) on
Mon, May 4, 09 at 17:40

We think we'd like to do a 1031 exchange for our townhouse. Our intention is to put 50-100% net proceeds into a local investment property that we can manage, but we might keep some for our never-ending remodeling project (maybe a pool?).

Can we split the proceeds like that or do we have to put 100% into a 1031 exchange?

We've never done this before and don't know where to start, so any advice is welcomed!


Follow-Up Postings:

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RE: 1031 exchange advice?

Is the condo your residence or an investment property?


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RE: 1031 exchange advice?

If the townhouse is 1031 eligible you can split it between other properties for an exchange and keep some in cash and pay the capital gains on the cash.

Consult your accountant to determine eligibility.


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RE: 1031 exchange advice?

I agree with what xamsx said. Also remember that timing is key. If I recall correctly, you have to identify all potential properties within 45 days of the sale of your property and close on those properties within 180 days.

Lots of rules and exceptions, you'll need an accountant or attourney's advice.


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RE: 1031 exchange advice?

It's an investment property that we've had a tenant in for 13 years after we moved out.
The property is in MD and we live in FL - so where should we find an accountant?
What/who should I use as the "related party" (or whatever you call the neutral party that holds the money)?


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RE: 1031 exchange advice?

When we did our 1031 in a different state we used a service in the state in which the property was located, where the closing would be. It was a company that specialized in doing the exchanges. There are many ways to screw it up so my biggest advice is to get that in place before you do anything.


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RE: 1031 exchange advice?

Since the 1031 is federal any account should know whether or not your townhouse meets eligibility requirements. A broker-dealer holds the cash. Ask your accountant or attorney for a recommendation.


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typo

accountant, not account

*still wishing for editing capabilities*


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RE: 1031 exchange advice?

I knew what you meant. And the townhouse does meet eligibility - it's all the other requirements that are scary.
I've never had an accountant or lawyer (except a friend who handled a sale on the west coast for us) so I don't know how to even find one!


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RE: 1031 exchange advice?

I have 2 friends who have done numerous 1031 exchanges. They don't use an accountant, they use a facilitator. They both use accountants for other things, but the faciliator handles the 1031 exchange.


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RE: 1031 exchange advice?

The accountant is not for a 1031 exchange, the accountant is to make sure the property is eligible.

You can't touch the money at closing it will need to go directly to a 1031 Accomodator. Do a google search on "1031 Exchange Accomodator" for more details. If you don't have a lawyer or accountant, ask your Realtor for a recommendation. No matter what you need an accomodator to hold your money if you are not taking it all in cash.


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RE: 1031 exchange advice?

If you decide to use an accomodator be sure to do some due diligence. There have been several high profile accomodators who have taken the money and run. Not only could you lose your money but then you will also have to pay the capital gains taxes. This is not an area to be penny wise and pound foolish. Read the contracts before signing. You can request only treasuries for the money to be held in. Google 1031 exchange accomodators fraud. Be careful. 1031s are great but you really need to do your homework or get an attorney to do the homework.


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RE: 1031 exchange advice?

kellywa-
Your warning is exactly what I was most worried about. I was thinking, how easy would it be to "hold" money for someone many states away that you've never met and how easy it would be to disappear when they only have a phone number for you....

I mean, if we screw it up and end up paying the capital gains, oh well, at least we have most of the proceeds - we expected to pay the taxes anyway until I remembered reading about "Starker exchanges" in Bob Bruss' column years ago. Our intention has always been to reinvest some of it anyway, so if we can work it safely and legally, it should work out well for us to save a few $$$.


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RE: 1031 exchange advice?

A "Starker exchange" was codified by the IRS. You may be looking to TIC exchange (Tenants in Common) governed by some fairly strict IRS regulations (although no SEC oversight as they are real estate investments not securities). You need to find a registered-rep to hook you up with a TIC Facilitator. This is the TICA website. Maybe you get in touch with them through the contact page and they can recommend a qualified intermediary (accommodator) or you can learn more about TIC exchanges? Hopefully the TICA association can direct you to someone in your general area and more information concerning your questions.

If you decide to take the cash because you are wary, the tax rate is currently only 15%. Deferring tax on the gains by reinvesting may not be a wise move for you.


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RE: 1031 exchange advice?

Keeping any money out of a 1041 (AKA 'Starker exchange') is pretty hard to do.

You must exchange equal or up, and not take any money or debt relief out of the transaction.

I would trust a knowledgeable attorney before anyone else.

Making a mistake will make capital gains due on the 'boot' immediately.


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RE: 1031 exchange advice?

I'm a CPA and have had many clients undertake 1031 exchanges. What"brickyee" posted above is very true -if your're wanting cash out you may find that it is not worthwhile undertaking an exchange. You probably need to hire a CPA for just 1/2 hour or so to determine whether a 1031 would be beneficial to you or not. Then worry about the qualified intermediary. My clients have used attorneys, title companies, 1031 specialists etc as their intermediaries. Most often that part isn't very complicated, I'd go to a title company or attorney before an unknown person who I've found through an internet search.


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RE: 1031 exchange advice?

Better find out what the capital gains are now, as opposed to what they will increase to once BO gets done with things.


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RE: 1031 exchange advice?

Wait until Obamanation realizes that many investors 'realized' there loses while avoiding the 30 day wash sale rule on stocks.

They will have NO capital gains until the market value of the stock returns to the value they originally purchased at.


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RE: 1031 exchange advice?

Political opinions aside, we have decided to just go ahead and re-invest all the funds to defer any federal taxes, and if all the paperwork goes through, we'll be able to exempt the shocking Maryland 7.5% non-resident tax.

I was double-referred to a national intermediary that has been extremely pro-active in getting the paperwork done, which is critical because we are already under contract.

Now to find one or two properties that we want to purchase and manage ....


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