Can I do a 1031 election myself? Settlement proceeds

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Can I do a 1031 election myself? Settlement proceeds

Natalie Schanne
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
I’m used to thinking about hiring 1031 companies if I’m selling a property and want to buy another one sometime in the future, but might not know which one yet. The 1031 company holds my sales proceeds. I’m selling a house on Wednesday and buying a house on Thursday. The first was a flip and the next will be a long term rental. If the settlement company sends my proceeds directly to the next settlement company, can I fill out a 1031 form myself and act like I did one? Or do I need an official intermediary company? The profits are minimal like $10,000-$20,000 which will be taxed at about 25% fed and 6% state as marginal income. Thanks!
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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y

Almost positive outside of some weird exception... you can't use 1031 on flips.

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  • Guy Yoes
    Rental Property Investor · Springfield, MO · Member since 2017 · 266 posts · 312 votes
    8y

    My understanding is ANY 1031 must go through a third party. I'm sure other will confirm this.

    1Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    8y

    Almost positive outside of some weird exception... you can't use 1031 on flips.

    2Reply
  • Brad Shepherd
    Syndicator · Austin, TX · Member since 2014 · 85 posts · 47 votes
    8y

    You MUST have a third-party intermediary. Even though in this instance you described you're not touching the dollars, you could have. This would be like trying to have a self-directed IRA without a licensed custodian.

    Sounds like the tax implications are minimal so it may not be worth the expense. And as Matt K. said, if you bought the property with the primary intent to sell it, you can't go the 1031 route. 1031 is for properties held as investments, not inventory.

    1Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    8y
    Originally posted by @Natalie Schanne:
    I’m used to thinking about hiring 1031 companies if I’m selling a property and want to buy another one sometime in the future, but might not know which one yet. The 1031 company holds my sales proceeds.

    I’m selling a house on Wednesday and buying a house on Thursday. The first was a flip and the next will be a long term rental.

    If the settlement company sends my proceeds directly to the next settlement company, can I fill out a 1031 form myself and act like I did one? Or do I need an official intermediary company?

    The profits are minimal like $10,000-$20,000 which will be taxed at about 25% fed and 6% state as marginal income.

    Thanks!

    Well the first issue here is that you can't utilize a 1031 on a flip. So- The odds are this transaction doesn't qualify. There are a few "Maybe" situations- but they are few and far between. 

    Additionally, with a 1031 you have 45 days to identify the properties, and you need to start the 1031 prior to sale.

    @Dave Foster Should be able to provide further clarification. 

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Natalie Schanne, Wow - I just voted up four posts on this thread - a new record.  Everyone nailed it.

    1. No 1031 on flips.  Your intent must have been to hold the old property and also to hold the new property.

    2. No you can't do it yourself and act like you did. The only time you technically don't need an intermediary is when you are actually swapping properties and even then it can be very dicey in how the documentation is handled.

    3. The custody of funds is only part of the equation.  The documentation is also key.

    4. When you're ready to sell that long term rental then it will be time to 1031.  

    Sorry :(  But you made money :)

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