1031 exchange:
Vacation Homes
We bought a condo on Hawaii, in February, 2004. It's been solely used as a "vacation rental" . The purchase price was $250,000. We have a first mortgage for $225,000 and a HELOC for $25,000. Obviously, we didn't plan to buy this place, but it popped up. It's a great unit, and we were in the right place at the right time, with great credit, and a terrific loan guy. Anyway, we've recently been contacted by several agents on Maui with qualified buyers looking for a unit in our building. The current market value is about $475,000 - $499,000 - So if all goes well, we're looking at a possible gain of $225, 000 - $250,000. (less the agent's commission of course).
Here are my questions!
Last fall, (November of 2004) we put "holding money" down on a pre-construction condo/vacation project in Florida .... HOPING (and praying) the timing on selling the Hawaii unit would work out for us. The purchase price of that unit will be $369,000. We were recently notified that the project could be ready for occupancy as early as June, 2006. So, question number 1 - Do these two properties qualify for a 1031 exchange? (Oh please say yes) And, if so, what are the time constraints? I know you have to identify a unit .... and buy a unit ..... all within a certain amount of time ..... But that's where I get really fuzzy. And if they do qualify .... How does that work tax wise? Do you just roll the money into the other property, tax free? Or do you pay a lesser amount - Or what? Basically, if we could sell the Maui unit in the next couple of weeks .... could we "hold" that money to purchase the Florida property? Or would we need to delay the sale a few more months to be in some kind of safety zone? I've tried to become as informed as I can on 1031 exchanges, but I'm still not really sure of how this all works. I do know you need to "give" the exchange to a 3rd party (such as yourself) to handle the process, and that the money has to go into a trust ~ or something. Anyway ...... CAN YOU PLEASE HELP ME? We are VERY serious about doing this, and I would appreciate an answer to these questions as soon as humanly possible. Anyway, thanks very much in advance. You have a very nice, informative site and blog, and I look forward to hearing back from you!
All the Best,
M.Dear M:
Thank you for contacting us. I will try to answer your questions as succinctly as possible. 1) Vacation homes are a gray area. They must have been held primary for investment and only secondarily for your personal pleasure and use in order to qualify for 1031x. In your description it does sound like you thought you were getting a great deal and were expecting a large gain on the HI property. Whatever you can do to bolster your investment intent, at the time you bought HI, will help. Having said that we do many vacation home 1031x transaction as there are many of them in Colorado. 2) Fl must also be held for investment. You must purchase FL within 180 days after you sell HI. You can contract to sell HI now, but do not close on HI until you are sure FL will be ready within 180 days. 3) When you trade down in value as you describe you are taxed on the difference. You can avoid paying this tax if you buy a second replacement property within the time limits, or you can just pay some tax. In that case you would have a partially deferred 1031 exchange. 4) Yes you do need a Qualified Intermediary (our company) to hold your exchange proceeds between your sale and your purchase. I hope we can help when you are ready.Sincerely,
Steve Hickox
Attorney / PresidentMore Info? Click here: http://www.1031x.com/
2120 S. Birch St.
Denver, CO 80222
888-899-1031
Email us with questions: infox@1031x.com
