1031 Exchange Contract names

8 Replies

I am thinking about buying a new home with my 1031 money. House with be ready in time for closing. Agent wants to do paper work in my name. Then put my LLC on the title. Is this correct? My 1031 exchange is in my LLC name.

Also I don't have all the money I need for down payment . They want 20% down because I am paying cash. What options do I have for finding down payment money. I need 27K.


Please find yourself a Qualified Intermediary (QI) before you close on anything, whether the relinquished property or the replacement property. What you described does not sound like it fits all requirements for a 1031 exchange. 

1031 requirements are very specific and a misstep can't be remedied after the fact. Recommend you consult with your real estate attorney now to make certain that you check off all of the requirements. Good luck.

@Tami Walker

There are a lot of potential problems in your scenario.  You need to get counsel quick.

1. "Home" implies that you may be living there.  This is not a potential residence for you is it?  If so then that is not an acceptable use of 1031 proceeds.  You must buy investment real estate. 

2. If you have already closed on the sale of your old property and an intermediary wasn't involved and you received the proceeds you are done.  There is no 1031 exchange. You have a taxable event.

3. If you do have a QI involved then they should be guiding you through this process or you should be running from them as fast as you can.

4. It does not matter whose name is on the contract. Title to the new property must be the same as title on the old property. We recommend that you either include a 1031 cooperation clause which is standard on many standard hud contracts. Or you can simply make the contract assignable. You agent is correct as long as you can assign the contract to your LLC.

5. You say you are paying cash so that really says to me is that they want 20% earnest money.  See Number 2.  There is a very easy way to use your 1031 proceeds to fund earnest money.  It's  called a "request for earnest money".  Any experienced QI should be able to handle this relatively simple procedure.

Sorry to be the bearer of bad news.

Yes get the Qualified QI TODAY!

I have seen attorneys mess up 1031's. So have brokers/agents. They might know a little about it but it's the one or two things they miss that will cost you dearly.

The IRS loves people to get bad info so they can then disallow the exchange and get more taxes. If you get tax audited years from now the 1031 wouldn't stand if you did not complete it correctly or it wasn't eligible to begin with.

No legal advice given.   

@Tami Walker  

A Qualified Intermediary (QI) is one of the IRS requirements to qualify for a 1031 tax deferred exchange. I hope you have not closed on your sale without a QI.  If it's in the process of being sold you need to contact a QI for info.  1031's have specific requirements and deadlines but are not tricky if they are followed.  A QI would be your best bet on how to handle title in a 1031 exchange. They do not give legal advice but will let you know what you can or cannot do.

Are you talking about down payment or earnest money?  Do you mean that the 20% down payment is the earnest money to sign the contract?  For a 1031 exchange all proceeds from the sale and toward the replacement must go through a QI including the downpayment if it is a leveraged purchase.  Again, please contact a QI on how to best handle this.  Good luck!

@Joel Owens  

You are absolutely right that brokers/realtors/attorneys/mortgage companies have limited knowledge on how a 1031 works. I am in the process of exchanging one SFR in the west for two brand new SFRs in the south and was dismayed to learn how little they knew of the 1031 process. My QI was excellent in educating and enlightening them on the process.

Sorry I have a QI, its a weekend and cant call. I am buying a house to use as rental property. Wanted to clear this up.

All of BP breathes a collective sigh of relief :)  

Your QI should have the answers and processes for all of your other questions.  If not feel free to call me.

Thank you all, you guys are lifesavers

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