1031 exchange into personal residence

Mr. Hickox,

Is it possible to sell a rental, and exchange with your primary residence (make it a rental), and move into a new residence. There are no lenders involved and the ownership for rental is wife only but present residence is wife/husband. I would think you would need to sell your present residence to WHO??and buy it back as a replacement property. Thanks

 

Dear P:  The simple answer is no you cannot sell your rental and buy your principal residence (from yourself) even if you immediately convert the residence to a rental.  Any hoops that you jump through as far as selling the residence to a third part and then buying it back would be ill advised.  Please consider selling the rental and finding another suitable replacement property for your 1031x.  Sincerely,

Steve Hickox
Attorney / President

1031 exchange, refinance, second transaction

Dear 1031x:

If I sell a property and buy another one with a 1031, spend all the cash, and take the same amount of loan, no taxes are to be paid, this is correct I suppose.

However, in order to be a successful 1031, the new property should be investment property, and to be kept at least a year and one day.

Am I still correct ?

 

1. What if I sell  this newly bought property, after one year and one day, for the same amount of money that I bought it for, and not re-invest ?

 

2. If I sell it for more than I bought it for,  and wish not to re-invest, on what part do I need to pay taxes, if I keep it for more than one year and a day ?

 

Thanks for your advice.

 

Dear Mr. B:  Let me give you a simple example to explain: 1) You buy for $100K and one year later sell for $120K.  Your gain is $20k.  Tax will be paid on this $20K unless you 1031x.  You do a 1031x and buy a new property for $120K.  Soon thereafter, for an independent business reason,  you take out a new mortgage for $100K.  This will be non-taxable borrowed money; not income.  You wait another year and sell for $130K.  You do not do a 1031x this time.  You will be taxed on all the gain.  That is the $20K you made in the first transaction and the $10K you made in the second transaction.  1031 is a deferral method only.  I hope this helps.  Sincerely,

Steve Hickox
Attorney / President

1031 exchange construction

Dear 1031x.com: I own a home and a piece of vacant property. I would like to  exchange my home for a retirement home on my vacant property. Can I do an  improvement exchange by getting a builder (or someone) to hold the title  to my vacant land while a retirement home is built, then exchange my  existing home for the land/retirement home property? If so, how do I  protect myself from the middleman running off with my property; and is the  transaction strictly a "hold" or is it a sale? Where can I find specifics?  Thanks, Dave.

Dear D:  What you are describing is not really a 1031 exchange.  When you eventually sell your home that sale will be governed by IRC section 121and not by 1031.  You cannot 1031 exchange your principal residence.  All you really need to do is hire a builder to build on your vacant land, then sell your home and move into the new home.  Sincerely,

Steve Hickox
Attorney / President

1031 exchange by corporation

Dear 1031x.com: I sold a property in FL, with my corporation, and want to buy other property in another state. Will this bring problems, when the FL company sells this property later on  (after one year and one day) ? What if I would buy different (max 3) properties in different states, would this still be a valid 1031 ? 2. Also, the selling price includes a loan of about one third of the  selling price. If I am right, the seller of the new property cannot hold part of mortgage to make 1031 fully valid, and I need to look for financing.   Will I have trouble financing if company is from other state  than property ?

Dear Mr. B:  I am not sure I understand your question.  Here is the answer.  If the old property is owned by a corporation then the 1031 exchange must be done by the corporation and the new property(ies) must also be owned by the corporation.  Yes, this can create financing difficulties for you especially in a new state.  Why are you holding investment property in a corporation?   This is usually a bad idea.   You can buy up to three new properties located anywhere in the USA.  You can later sell any of them and 1031 exchange again.  It is ok for the seller of the new property  to carry back financing for you.  This kind of financing will be treated like any other financing from a tax stand point.  If this is not a complete answer for you please try again.  Sincerely,  

Steve Hickox
Attorney / President