A bit complicated - 1031 exchange ideas needed
Hi all, I subscribed to this forum for some ideas on how to make this work. In 1963, my father was killed in an accident and our farm passed to us, his kids, with undivided interest ownerships. Our Mom had a life estate and received the income for her lifetime but passed away in 1992 and since then it's been, basically, our hassle. Flash forward over all the years and we are selling the farm, finally, to avoid passing this on to the next generation and creating an even bigger mess. Some years ago I put my own 20% ownership on the farm into a Revocable Trust with myself as trustee and beneficiary, for estate planning purposes. There is no debt on this property and the capital gains tax will be substantial - I was told by my accountant that the tax would be anywhere from $116,000 to $160,000 on my share, if my net from the sale was the estimated ~$600,000. I am a retired federal employee and my income isn't that great but I get by. We own our home with a very small equity loan being the only lien on it. I'm not at the stage in my life to go out on a limb as far as huge risks or turn into some big real estate mogul - just want to do this one thing correctly. :)
So the farm is listed for sale and the State is negotiating for the purchase as State Land inventory, however they just screwed up by hiring an incompetent ag appraiser who didn't pass muster, and so they have to re-do the appraisal and the review of the appraisal. That will cause a delay of the closing till after the time they would need to get a new lessee for the coming year so they want to delay the closing till Oct 1, the end of the next growing season. Meanwhile, I have located the replacement property I truly want.... property I can use for income for a couple of years and eventually build and live there. A small acreage. The owner of the property is an estate and they want to sell to me and are willing to work with me as much as they can, and by that I mean they are willing to put off the closing for a bit, to make it all work. They are also putting off listing the property as well, at least till Spring. I have talked to them about the possibility of leasing with an option - wondering if this is something that is feasible at all and how we could make this work. I was told it might work as far as the exchange, I could buy land as a replacement that I have rented from the owner....but we have to be very careful that it's a bona fide lease and not a purchase disguised as a lease... thoughts?
The price of this replacement property is less than what I would ever receive from the sale of the relinquished property, farm, so I do understand there will be some "boot", as well.
I know I could do a reverse exchange but have already found out that the State can be a glitchy buyer to work with and has postponed closing once already. The problem is, say the EAT acquires the replacement property and "parks" the title on May 1, and the farm sale goes down the tubes or otherwise doesn't close timely and I miss the 180 day deadline? That wouldn't be cool! I am willing to sell my share of the farm out to an investor, even, but where does one find an investor who will step into a 1/5 undivided interest in a farm that's up for sale? I am willing to borrow money (not sure where or how that's done) and the Exchange Coordinator I talked to acted like "yeah, good luck finding a lender." and said that most people who do reverse exchanges either have the cash sitting around or own other property they can put a lien on. Well I'm not really willing to put a lien on our home for that, especially with the risk of a failed 1031 exchange costing huge tax $, plus our home doesn't have $325K in equity anyway.
The exchange company I spoke with mentioned something about forming a one person LLC and having the LLC (somehow) purchase the replacement property, then later when the farm sells (or something) I could do the exchange via buying the property from "my" LLC. Is that really possible? Any other possibilities or creative ideas? The property I want to use as replacement, as I said, is very special to me as it belonged to my dear friend who recently passed away. I am so honored that her family wants to work with me to make this work - I just need to find a way.
I know this is long. I tried to make it shorter but dang it's kind of complicated!
Any ideas at all would surely be appreciated. Thanks in advance!