1031 Tax Exchange Information

1.) Email us at infox@1031x.com:

  1. 1. Your contact information

  2. 2. The address of your sale property

  3. 3. The contact information of the company

     

2.) We then draft an exchange agreement for you to sign. (This exchange agreement is required by the IRS.) You return the signed exchange contract to us, and we review the settlement statement with your closer.

3.) We also open a new bank account for only your funds. This bank account requires your signature to open the account and to make any withdrawals from the account.

4.) The closing agent wire transfers the sales proceeds in your restricted account. You have 45 days to identify replacement property(ies) using a form that we provide. You have 180 days to close on that property(ies).

5.) Email us at infox@1031x.com:

  1. 1. The address of your purchase property and

  2. 2. The contact information of the title company to us

  3.  

Your closer sends us the settlement statement, and we wire your money to your closing of the replacement property(ies). If there are any remaining funds, a wire is made out to you and taxes may be due on this amount for that taxable year.

Qualification

You must want to relinquish investment property and to replace it with other like-kind investment property. Generally, investment real property is exchangeable with any other investment real property regardless of use. You must acquire replacement property within 180 days. By using us as a “Qualified Intermediary” you carry forward the tax basis from the relinquished property. The gain is recognized in the future when replacement property is sold without a 1031 exchange. In order to fully defer capital gains tax, you must exchange equal or up in value and equity.

Common questions from clients about commercial exchanges

I have a question: If we are receiving a total of $100K from the sale of a Lake Property (Profit $70K), and we intend to purchase a commercial building for $75K. Can we apply $25K of the lake property sale toward a new roof on the purchased property and still defer all taxes related to the sale or do we have to choose a second piece of real estate to apply the remaining $25K?

Dear Anonymous: Thank you for contacting us. The IRS considers improvements made to a property after purchasing it to be outside the 1031x (1031 exchange). (taxable). The best thing to do is to have the new roof put on prior to your purchase and have the roofing company paid as a debit off the sellers settlement statement. What you are really doing is raising the sale price to $100K and having the seller pay for the new roof. Does this work for you?

IRS Rules in 1031 exchanges - Held for investment

Dear F and V,
As stated immediately below, there is no period of time for which you MUST hold a relinquished property. Whether you held a property for investment or for immediate resale depends on all of the facts and circumstances. Whatever you can do to document your file to show that you meant to hold this new property for investment will help should the need arise. The passage of time is only one of many factors that the IRS might consider. I have helped with exchanges where the taxpayer was in the midst of fixing up the property for rent and a buyer showed up in the first 60 days and purchased it. We did a successful 1031 exchange. As stated on the phone: imagine a circumstance where you 1031 exchange into a property. Unexpectedly the market starts dropping. Would the IRS say that you must suffera year long down turn in the market before you can 1031 exchange out of a property? Of course not.

The "Held For" Requirement for 1031 Property Received or Exchanged

In order to qualify for a 1031 Exchange, the Relinquished and the Replacement Properties must both have been acquired and "held for" investment or for use in a trade or business. The amount of time that the property must be "held for" use in a trade or business is not specified in either the Code or the Regulations.

The position of the IRS has been that if a taxpayer’s property was acquired immediately before an exchange, or if the Replacement Property is disposed of immediately after an exchange, it was not held for the required purpose and the "held for" requirement was not met.

There is no safe harbor holding period for complying with the "held for" requirement. The IRS interprets compliance based on their view of the taxpayer’s intent. Intent is demonstrated by facts and circumstances surrounding the taxpayer’s acquisition of ownership of the property and what the taxpayer does with the property. The courts have been more liberal than the IRS on these issues. 

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