my 1031 exchange #'s & ?

Question

hello, im doing my research on the 1031 exchange...

my #'s: i purchased a 3 family for $215K and owe $209K...i put $30K into it and have it under agreement for $300K

when the atty sets up the 1031 and we close on the property what amount goes into the 1031 account?...is it just the gain of $55K or do all the proceeds $91K ($300K sale price - $209K mortgage)

thanks

Bill Exeter · Answer

I'm not sure exactly what you mean by "goes into the exchange," but here are the requirements.

You must acquire property that is equal to or greater in value than the net sales price of the property that you sold, and all of the net proceeds (equity) must be held by the 1031 exchange Qualified Intermediary and reinvested in your acquired property.

And, if you do not already have a Qualifeid Intermediary, we would like to assist you.

Lynn Z · Answer

Thanks I decided to improve my 1031 (building a garage this month) and move in it by Dec. 31st, live there for 3-5 years and hopefully exempt capital gains when I sell my home.  Hopefully I can refi the mortgage and the garage in the high 4's or at least 5%.  I don't think mortgage rates are going anywhere.  I've rented in for 21/2 years so feel safe on my held for investment time.

After all except for the depreciation recapture at sale time you really don't to report the sale to the IRS.

I see some articles recently blaming the housing woes on people moving every two years and exempting capital gains.  Guess Congress will work on that attitude and do away with capital gains exemption for personal residences eventually.

I really am ready to get off of the 1031 merry go round for awhile.

Bill Exeter · Answer

As a follow-up Lynn, you are right about the lack of expertise in this area.  I would say that 98% of tax advisors do not really understand 1031 exchanges.  I would be happy to chat with you by phone if you like and help you out.

Bill Exeter · Answer

Hi Lynn,

No, this is not a developing story.  I've administered in excess of 75,000 1031 exchanges during my 24 years in the business as a professional Qualified Intermediary and we see very, very few of these audited.

I would anticipate an increase in the number of 1031 exchanges audited over the next few years, but not a huge increase.  The IRS does not have the resources to devote to this.

Lynn Z · Answer

These CPA's are from Greenville, SC and claim to have IRS contacts that passed this info to them.  Could this be a developing story as we say?

I'm discouraged at the lack of expertise on the subject.

Bill Exeter · Answer

The taxpayer must have the intent to hold the property for investment in order to qualify for 1031 exchange treatment.  You would need to be able t prove your intent to hold (versus held for sale/flip) if you get audited.  
            
            Here is a link to an article that discusses this in much greater detail: http://www.exeter1031.com/holding_guidelines_for_1031_exchange_property.aspx.. 
            
            Lynn, your CPA is mistaken.  There are very few 1031 exchanges audited at this point in time.  I would not be surprised to see the number increase in the future, but I do not expect it to be a large number.

J. McCarthy · Answer

I doubt they care one way or another about 1031 exchange as a tax strategy, but its their job to prevent fraud and to collect every dollar due Uncle Sam. I'm sure they find problems of some sort in almost every audit they conduct. That's why its important to have expert advice.

Lynn Z · Answer

The CPA's at my last REI meeting stated the IRS agent he talked with said the IRS is auditing many 1031 exchange deals and finding 80% with problems.  Some states are apparently moving to audit all 1031 exchanges.

I feel like the ones I've done are so darn complicated that any IRS agent could pick something they don't like.

Perhaps the IRS doesn't like 1031 exchanges.

J. McCarthy · Answer

Nice to see flipping is still possible in this market. You may want to get a second opinion about the possibility of a 1031. If you intended to hold on to the property, advertised it for rental, don't usually flip, etc., you may find a loophole. Maybe Bill can reply with his opinion.

Robert Granara · Answer

yes thanks all...i did more research and now realize i cant do a 1031 exchange on a flip...i have only held it for 3 months...thanks all

my 1031 exchange #'s & ?

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