1031 Exchange questions

Investor · San Diego, CA · Member since 2011 · 52 posts · 11 votes

I'm planning to sell a single family rental (5 yrs now) in CA and do 1031 exchange.

- At what point do I need to make the election to do 1031 exchange? How much time prior to sell?

- As I understand, part of the sale proceeds can also be used to rehab the exchange. Is this correct? Is there a particular ratio of rehab money to total gain?

- Does the 180 days period still hold? Is it 180 days from close of sale to close of new purchase, or to execution of new purchase? What about the rehab time?

Thanks for any clarifications.

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Ana Adler

Rental Property Investor · Saint Petersburg, FL · Member since 2013 · 11 posts · 7 votes

I can also recommend Bill Exeter. I used his firm to do a 1031 exchange three years ago - excellent support and infinite patience with my endless questions. His website is full of info on how the process works. Plus you can do an also just set up an informational call without the pressure of signing on.

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y
You need a QI set up preferably before you contract to sell, certainly before you close. You can use part of the proceeds for rehab of the new property but they must be complete and paid for, by the QI, still within the 180 day clock.
@Bill Exeter
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Ana Adler
Rental Property Investor · Saint Petersburg, FL · Member since 2013 · 11 posts · 7 votes
9y
I can also recommend Bill Exeter. I used his firm to do a 1031 exchange three years ago - excellent support and infinite patience with my endless questions. His website is full of info on how the process works. Plus you can do an also just set up an informational call without the pressure of signing on.
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Leslie Pappas
Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes
9y
Hi @Ben A, if you're an accredited investor who is seeking to defer your capital gains tax when you sell and you no longer want to be the landlord, you might consider reinvestment into DSTs (Delaware Statutory Trusts). They are hands-off, institutional grade real estate investments, and they allow you the option to diversify. You can buy into institutional grade $50-125M projects with as little as $100,000. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
@Ben A, Your 1031 will start with the sale of your property and in essence your election would be when you complete it with your replacement purchase. If you fail to complete a 1031 there is no penalty you simply incur the tax you would have normally paid. And yes, the total time period for a 1031 is 180 days from the date of the close of your sale. However, a more important timeline is 45 day identification period. You have 45 days from the close of your sale to either close your purchase or create a list of potential replacements. After day 45 this list is set and only the properties on it may be used for your exchange.
Your intermediary simply needs to be in place anytime prior to the sale. I would encourage earlier rather than later as the key to a successful exchange involves crafting it strategically to meet your goals and direction.
Your exchange will end when you accept and take title to the new property. So there is no opportunity to enfold rehab costs after the fact. However you may want to look at a reverse or improvement exchange in which your QI takes title to the new property while it is rehabbed and prior to you taking title. This can allow you to roll rehab costs into the 1031. There is also some ability to roll small amounts of specific types of rehab into your purchase.
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Ben A
OP
Investor · San Diego, CA · Member since 2011 · 52 posts · 11 votes
9y
Thanks for recommendations @Wayne Brooks @Ana Adler
@Leslie Pappas I have plans on particular property that I'm going to purchase so this won't be an option for now; but thanks
Thanks @Dave Foster I'm certainly going to need to learn more about this plan.
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Michael Lee
Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
9y
Why did you not mention 1031 Exchange and only make a sales pitch to probably an unsuspecting Newbie? How long have you been doing this and getting away with things?
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Account Closed
ME · Member since 2016 · 22 posts · 10 votes
9y
Just wanted to chime in here and ask, who normally sets up a 1031 exchange?( Lawyer maybe?)
I'm asking for my own near future knowledge when I'm ready to sell my house .
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
@Account Closed, Your 1031 will start with the sale of your old property. An individual called a Qualified Intermediary must be retained prior to your sale. Their job is to document the exchange and guide you through the process. The qualified intermediary does not replace any of the normal professionals in the closing process they are just an unrelated extra layer that handles the 1031.
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Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
9y
Hi @Ben A,
You will need to retain the services of a Qualified Intermediary. It is critical that the Qualified Intermediary set up your 1031 Exchange transaction prior to the closing of either property. You will be fine as long as the 1031 Exchange transaction is put in ways no later than the closing date, however, it will take a lot of stress off of you and your closing agent if you can make the decision and have the 1031 Exchange transaction set up 1 to 2 weeks prior to your closing.
Sale proceeds can be used toward capital improvements on your Replacement Property. There are a number of ways to accomplish this, some of them easy and some of them complex. Generally, you will have to set up an Improvement 1031 Exchange transaction where the Qualified Intermediary acquires and holds or "parks" legal title to your Replacement Property while you make the intended capital improvements. These are more complicated and more costly, but can be a very effective tool when you will have access 1031 Exchange funds left over.
Yes, the 180 calendar day exchange period will still apply. The 180 calendar day exchange period will begin running with the close of the sale of your Relinquished Property (or with the closing of the purchase of your Replacement Property if you are structuring a Reverse 1031 Exchange transaction).
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Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
9y
Originally posted by @Account Closed:

Just wanted to chime in here and ask, who normally sets up a 1031 exchange?( Lawyer maybe?)
I'm asking for my own near future knowledge when I'm ready to sell my house .
Qualified Intermediaries are generally companies that specialize in the administration of 1031 Exchange transaction. While some of them might be run by attorneys, most of them are organizations that merely specialize in the administration of 1031 Exchange transactions. The key is selecting a Qualified Intermediary that has both the experience and expertise necessary to properly and successfully administer a 1031 Exchange transaction.
Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.826 Reviews
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