1031 Exchange

 

Frequently Asked Questions:

What are the timing requirements for a 1031 exchange?

The §1031 exchanges begins on the earlier of the following: The date the deed records or the date possession is transferred to the buyer.

The maximum exchange period is 180 days If a taxpayer closes on the sale of the relinquished property after October 15th, he will need to file a tax extension to use the full 180 days. The Identification Period is the first 45 days of the exchange period. If the Exchanger has Multiple Relinquished Properties, the deadlines begin on the transfer date of the first property.

Is there a tax if I don't exchange for something of equal or greater value?

Yes. However, you can still do an exchange to defer a portion of the taxable gain, but, you will pay taxes on any "boot" received upon completion of the exchange. The cost of the replacement property may be reduced by the cost of broker commissions, escrow and title fees for all transactions involved in the 1031 Exchange.

Can I Take Money out of the Exchange or get out my cash down payment?

No funds can be disbursed to the Exchangor while held by Qualified Intermediary until the 46th day, if no replacement property has been identified, or if all that was identified has been acquired by the Exchangor. If property was identified but not acquired, unless the identified property has been destroyed, funds cannot be disbursed to the Exchangor until the 181st day.

However, a taxpayer can take cash out at the close of escrow. These funds will be taxed at capital gains rates. The balance of the funds then may be used for the exchange.

I've been asked to carry back a Purchase Money note for my Buyer. Is that okay?

Yes. It is okay — but it might be considered boot and taxable. A seller carry-back can be treated as an installment sale or may be deferrable upon certain conditions. Call Bristol 1031 Exchange to learn more about this topic.

What Property Qualifies for §1031 Treatment?

With the exception of the taxpayer's primary residence, a taxpayer may exchange all types of real property. "Like-Kind property is considered to be real property that is held for trade, investment or business purposes. Examples are: are categories of commercial real estate, non-owner occupied single family residences, vacant land, ranches, multi-family buildings (apartments). Under certain conditions a primary residence may be involved with a 1031 exchange while also utilizing the Homeowner's Exemption.

Can I use Funds to Improve Property I Already Own? Or Pay Down a Mortgage on another Property I Own?

You cannot trade real property for improvements, they are not like-kind. Also, if you own both properties at the same time there can be no trade. Though there have been some recent encouraging court cases, if at all possible do not acquire the replacement property until the improvements have been made. There are ways make the improvements tax deductible -- call for details. Secondly, a taxpayer cannot use proceeds from the relinquished property to pay down a note or mortgage on another property he owns.

I'm In a Partnership and some of my partners don't want to exchange. What can I do?

The same entity that relinquishes property must acquire property to qualify for an exchange. If some of the partners simply want cash and do not intend to exchange, they can be cashed out when the sale closes and the partnership can remain intact and acquire property. However, if the partners want to go their separate ways and you want to exchange, then the only real option is for the partnership to deed the appropriate percentages to the various partners, before the sale closes. Change to a tenants in common vesting. There is a risk in this, however, in that §1031 is for property held for productive use in business, trade or for investment purposes. If the partnership deeds to the individual partners, has the property then been "held" by the individuals? Talk with your CPA or tax advisor.

Do I have to tell the buyer, that I'm doing a 1031 exchange?

The I.R.S. likes to see a clear intention to exchange. The cooperation clause is designed to clearly show the Exchangor's intent to exchange. It is possible to accomplish an exchange by adding this statement after the initial acceptance of the offer, before the sale closes; or, to simply have the buyer sign the Assignment of the Purchase Contract prepared by the Qualified Intermediary (which is the extent of cooperation required).

Can I Exchange my Vacation Home?

Vacation homes fall under very strict guidelines to determine if they are actually investment property. If you've rented the property out while you owned it, it may qualify for tax deferral. In addition, if you have not personally used the property, or used it for less than 14 days a year-you might be able to convince the IRS it was purely held for investment. Talk with your CPA.

I've heard that several 1031 exchange companies have gone into bankruptcy or just left investors stranded without funds. Is Bristol 1031 Exchange safe?

Unlike some large title companies that boast about being self-insured, Bristol 1031 Exchange has a 4 million dollar fidelity bond backed by Lloyds of London. In addition, Union Bank of California is available to guarantee funds in excess of 4 million dollars. Third, we have the capability to offer a dual signature program, so that funds cannot be moved without the investor's cooperation. Fourth, Bristol 1031 Exchange does not co-mingle funds. Co-mingling of funds allows 1031 accommodators to move money at will and this has caused several drastic problems for investors.

We're ready if you are. Contact us to coordinate your 1031 Exchange now: 866-800-7653

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