Security deposit’s on 1031 sale

4 Replies

Selling small MF on a 1031, my question is on the security deposits.

In the past when I’ve purchased property the security deposit came out of the seller proceeds, does that work the same when I’m the seller and the proceeds are going to a 1031 exchanger ? Or do I need to bring a check to closing for the security deposits ( $7,000)

Thanks for your help

Jeff

I have no idea, but my comment will bump this up and give it another chance for someone to answer.  :-)

@Jeff Weaver We always recommend that security deposits be handled outside closing.  However, it's also something that your accountant can reconcile after closing when they file the 8824. 

Read on tax code. When you sell the MF there is a disclosure that this is a 1031 exchange and title company needs to record on the closing statement. Once closed whatever proceeds out of the sold sale stays with 1031 exchange until you satisfy the like-exchange purchase. If you cash or touch the proceeds it is all over.

On the purchase the EMD is going to be submitted with the contract with the stipulation that sellers will cooperate and that goes to the new escrow. If you identify three properties did not work (get rejected), it is also over you can not look for 4th property attempted.

Time is of essence. I see people scramble going from city to another state and found out they could not find a good like exchange. 

The 1031 exchange is being debated in congress as many law makers see it as a loop hole for the rich. It could end. 

If you sell your MF for $1M and could find properties less than you are liable for the capital gain taxes on the difference (1m-900K) plus all depreciation claimed though a recapture. It is cheaper to exchange to a higher price property with additional out of the wallet money.  

Hope that helps.

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