1031 exchange:
A Trap for the Unwary Realtor 1031 exchange, real estate exchange, capital gains, 1031 tax law
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Recently, we
performed a 1031x (1031 exchange) under unusual circumstances. The
realtor had listed the home, and it was under contract to close. The
owner was living in the property and had owned it for eight years. One
week before closing the agent and owner were engaged in casual
conversation. The owner innocently revealed that while he had owned the
property for eight years, he had only lived in the property for the
last seven months. The realtor had made the assumption that IRC section
121 would apply to the situation and that the seller would owe no tax.
Instead, IRC section 1031 applied. The realtor called us and we
performed a last minute 1031x. Imagine what could have happened, the
irate seller at tax time says to the realtor: "Why didnt you tell me I
would have to pay tax?" or "Why didnt you tell me to do a 1031x?" It
is now the realtors obligation to inquire about the historical use of
a property in order to properly advise and represent a seller.
For more information about comparing the requirements of IRC section
1031 and IRC section 121 go to the 1031 Exchange in a
Nutshell newsletter.
