Do I NEED a lawyer / attorney to handle a 1031?

Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes

Hey All,

Thanks for taking the time to read into this. I am selling my first home (previously owner occupied) in about two months and would like to utilize a 1031 so I can defer roughly 72k in capital gains. I know I need an intermediary, but do y'all prefer this person to be an attorney / lawyer?

Also, what do y'all usually pay for them to handle this transaction?

Thank you,

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Wayne Brooks

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

No, they typically are not attorneys, as it is very specialized.

Typical QI costs, $800-$1,000.

@Dave Foster is who I’d use, they don’t need to be local.

BTW, if it was originally your primary for at least 2 years and has been rented out less than 3 years you know you don’t need to 1031, right?

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
7y
No, they typically are not attorneys, as it is very specialized.
Typical QI costs, $800-$1,000.
@Dave Foster is who I’d use, they don’t need to be local.
BTW, if it was originally your primary for at least 2 years and has been rented out less than 3 years you know you don’t need to 1031, right?
2 Reply
Lauren SpeidelPro Member
Qualified Intermediary for 1031 Exchanges · Chicago, IL · Member since 2017 · 164 posts · 119 votes
7y
@Wil Reichard How long ago did you live in the property? Have you rented the property recently and if so, for how long? Section 1031 states that all parties must have an arms length transaction with the taxpayer. You could use an attorney as the QI but it is recommended that they only act in that capacity and do not provide legal advice. Keep in mind, any one can be a QI which has caused some issues with other investors because they may not have the experience and expertise needed to facilitate an Exchange. Also the industry is not regulated so it is encouraged to choose a QI who has insurance, bonding, and will be holding your funds in a Qualified Trust account. This will provide more security for your funds. As @Wayne Brooks mentioned, typical QI costs can range. I've seen as low as $500 and as high as $2,000.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
7y
Originally posted by @Wil Reichard:

Hey All,

Thanks for taking the time to read into this. I am selling my first home (previously owner occupied) in about two months and would like to utilize a 1031 so I can defer roughly 72k in capital gains. I know I need an intermediary, but do y'all prefer this person to be an attorney / lawyer?

Also, what do y'all usually pay for them to handle this transaction?
Thank you,
Hey Wil,
If it was previously owner occupied you may still qualify for a largely tax free sale without the 1031.
How long did you occupy it and how long has it been a rental?
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Wil Reichard
OP
Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Wayne Brooks:

No, they typically are not attorneys, as it is very specialized.
Typical QI costs, $800-$1,000.
@Dave Foster is who I’d use, they don’t need to be local.
BTW, if it was originally your primary for at least 2 years and has been rented out less than 3 years you know you don’t need to 1031, right?
Yes, unfortunately I’m selling after 1 year and 8 months of ownership. The market is better now than November so I feel as if it’ll be better to sell now instead of waiting for the two year mark.
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Wil Reichard
OP
Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Lauren Speidel:

@Wil Reichard How long ago did you live in the property? Have you rented the property recently and if so, for how long? Section 1031 states that all parties must have an arms length transaction with the taxpayer. You could use an attorney as the QI but it is recommended that they only act in that capacity and do not provide legal advice. Keep in mind, any one can be a QI which has caused some issues with other investors because they may not have the experience and expertise needed to facilitate an Exchange. Also the industry is not regulated so it is encouraged to choose a QI who has insurance, bonding, and will be holding your funds in a Qualified Trust account. This will provide more security for your funds. As @Wayne Brooks mentioned, typical QI costs can range. I've seen as low as $500 and as high as $2,000.
Good to know! I most certainly will not be using so joe smith off of Craigslist. I’ll look around for one and ask them if they are insured and what kind of experience they have with past 1031’s. Thanks!
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Wil Reichard
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Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Natalie Kolodij:

Originally posted by @Wil Reichard:
Hey All,

Thanks for taking the time to read into this. I am selling my first home (previously owner occupied) in about two months and would like to utilize a 1031 so I can defer roughly 72k in capital gains. I know I need an intermediary, but do y'all prefer this person to be an attorney / lawyer?

Also, what do y'all usually pay for them to handle this transaction?
Thank you,
Hey Wil,
If it was previously owner occupied you may still qualify for a largely tax free sale without the 1031.
How long did you occupy it and how long has it been a rental?
So I bought it Oct 17’ and have lived in it till now. So no tenants have been in there (except for roommates. Too easy not to have someone pay the bills when I’m living in a 3/1). I’d sell July of 19’. Actually typing that out makes it seem senseless to sell now rather than wait a few months, but the rehab is already done and I already have lots invested into it and have found 2 qualifying properties. Once I start I can’t stop lol.
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Lauren SpeidelPro Member
Qualified Intermediary for 1031 Exchanges · Chicago, IL · Member since 2017 · 164 posts · 119 votes
7y
@Wil Reichard I read your comment above and I was curious if you have rented the property? If not, it won't qualify for 1031 Exchange treatment. It is usually recommended that you rent the property for 12-24 months to prove you had the intent to hold the property for rental income, appreciation, or use in a trade or business.
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Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
7y
Originally posted by @Wil Reichard:

Originally posted by @Wayne Brooks:
No, they typically are not attorneys, as it is very specialized.
Typical QI costs, $800-$1,000.
@Dave Foster is who I’d use, they don’t need to be local.
BTW, if it was originally your primary for at least 2 years and has been rented out less than 3 years you know you don’t need to 1031, right?
Yes, unfortunately I’m selling after 1 year and 8 months of ownership. The market is better now than November so I feel as if it’ll be better to sell now instead of waiting for the two year mark.
Did you move far away? Or for medical reasons or work?
You still may qualify for a partial exclusion on sale. You should talk to your tax pro.
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Wil Reichard
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Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Natalie Kolodij:

Originally posted by @Wil Reichard:
Originally posted by @Wayne Brooks:

No, they typically are not attorneys, as it is very specialized.
Typical QI costs, $800-$1,000.
@Dave Foster is who I’d use, they don’t need to be local.
BTW, if it was originally your primary for at least 2 years and has been rented out less than 3 years you know you don’t need to 1031, right?
Yes, unfortunately I’m selling after 1 year and 8 months of ownership. The market is better now than November so I feel as if it’ll be better to sell now instead of waiting for the two year mark.
Did you move far away? Or for medical reasons or work?
You still may qualify for a partial exclusion on sale. You should talk to your tax pro.
I did not. Moved just a few minutes away. Just a great time to sell and can make a decent profit. Eyeing a four unit.
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Wil Reichard
OP
Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Lauren Speidel:

@Wil Reichard I read your comment above and I was curious if you have rented the property? If not, it won't qualify for 1031 Exchange treatment. It is usually recommended that you rent the property for 12-24 months to prove you had the intent to hold the property for rental income, appreciation, or use in a trade or business.
Ahhh. Never saw this when researching the 1031 until now. I had roommates. Not sure if I could use that as a technicality for collecting rent from roommates. Probably not. Man, that’s a hard blow. 10k will be what I’ll pay in taxes. That hurts. Any other suggestions?
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Lauren SpeidelPro Member
Qualified Intermediary for 1031 Exchanges · Chicago, IL · Member since 2017 · 164 posts · 119 votes
7y
@Wil Reichard Did you report that rental income on your tax return? If so, a portion of the property (the rented portion) may qualify for Exchange treatment.
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Wil Reichard
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Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Lauren Speidel:

@Wil Reichard Did you report that rental income on your tax return? If so, a portion of the property (the rented portion) may qualify for Exchange treatment.
I don’t believe I did. I will have to look back and see.
Thank you again for all this useful info.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
7y
@Wil Reichard, I thought @Natalie Kolodij was gonna save your day there for a minute. But I don't think you're going to be eligible for a partial exclusion either. Darn. That puts you in a tough position.
The actual standard for whether or not that property will qualify for 1031 treatment is your intent. You've got to be careful that you are able to demonstrate that intent. Actual rental income is certainly a solid demonstration. And if you've declared that you've got a very good defense. But actual rental income is not a bright line test. Most folks feel comfortable at something more than a year. But there could always be situations where an investment hold period of less than (or more than) a year might be justified.
You're a victim of timing for sure. But there may be some factors in your favor.
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Wil Reichard
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Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Dave Foster:

@Wil Reichard, I thought @Natalie Kolodij was gonna save your day there for a minute. But I don't think you're going to be eligible for a partial exclusion either. Darn. That puts you in a tough position.
The actual standard for whether or not that property will qualify for 1031 treatment is your intent. You've got to be careful that you are able to demonstrate that intent. Actual rental income is certainly a solid demonstration. And if you've declared that you've got a very good defense. But actual rental income is not a bright line test. Most folks feel comfortable at something more than a year. But there could always be situations where an investment hold period of less than (or more than) a year might be justified.
You're a victim of timing for sure. But there may be some factors in your favor.
Thank you Dave, I believe I will still talk to someone about it to see if there’s any wiggle room one way or the other. I would be buying this property straight as an investment and will not be owner occupying one of the units so maybe with that being said and the face that I had roommates as tenants in the building, may be able to find a loophole. I may be able to work something out. thank you Dave,
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Brent Crosby
Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes
7y
@Wil Reichard if you lived in it for two years you can sell and pay no taxes. No 1031needed
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Wil Reichard
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Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Brent Crosby:

@Wil Reichard if you lived in it for two years you can sell and pay no taxes. No 1031needed
It’s been less than two years unfortunately
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Brent Crosby
Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes
7y
Originally posted by @Wil Reichard:

Originally posted by @Brent Crosby:
@Wil Reichard if you lived in it for two years you can sell and pay no taxes. No 1031needed
It’s been less than two years unfortunately
Darn, I don’t think you can 1031 a personal residence. But I’d ask an RE attorney.
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Shiva Bhaskar
Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes
7y
Originally posted by @Wil Reichard:
Hey All,

Thanks for taking the time to read into this. I am selling my first home (previously owner occupied) in about two months and would like to utilize a 1031 so I can defer roughly 72k in capital gains. I know I need an intermediary, but do y'all prefer this person to be an attorney / lawyer?

Also, what do y'all usually pay for them to handle this transaction?
Thank you,
Hey Wil, I'm a lawyer, and I'll say, normally, I don't think you really need an attorney for doing a 1031. The 1031 intermediaries I hear about most as being solid are often not attorneys, although those who handle larger 1031 deals involving multifamily and retail/office properties often are.
With that said, it sounds like you have a few more complex issues here regarding the less than two years, whether you used it as a residence, etc. Might make sense to get an attorney who understands these issues, and how to effectively position you to make sure this works out. I'd ask other local investors in your area for a referral, or visit Avvo.com, often can find good folks on there.
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Wil Reichard
OP
Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
Originally posted by @Shiva Bhaskar:

Originally posted by @Wil Reichard:

Hey All,

Thanks for taking the time to read into this. I am selling my first home (previously owner occupied) in about two months and would like to utilize a 1031 so I can defer roughly 72k in capital gains. I know I need an intermediary, but do y'all prefer this person to be an attorney / lawyer?

Also, what do y'all usually pay for them to handle this transaction?
Thank you,
Hey Wil, I'm a lawyer, and I'll say, normally, I don't think you really need an attorney for doing a 1031. The 1031 intermediaries I hear about most as being solid are often not attorneys, although those who handle larger 1031 deals involving multifamily and retail/office properties often are.
With that said, it sounds like you have a few more complex issues here regarding the less than two years, whether you used it as a residence, etc. Might make sense to get an attorney who understands these issues, and how to effectively position you to make sure this works out. I'd ask other local investors in your area for a referral, or visit Avvo.com, often can find good folks on there.
Hey shiva, I’m in touch with a tax professional here locally. Hopefully they can provide some good news. Thanks for commenting and helping out with the rest of the crew.
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John Hovanec
Flipper/Rehabber · Piedmont, SC · Member since 2018 · 119 posts · 50 votes
7y
@Wil Reichard. Have you thought about doing a heloc and keeping the property as a rental? Your looking at other investment property why not keep it as a rental. Greenville prices keep going up it seems. Lol.
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Wil Reichard
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Rental Property Investor · Greenville, SC · Member since 2017 · 185 posts · 178 votes
7y
@John Hovanec I've already got the pictures and documents signed to sell. Also I need a way to recoup the tens of thousands I spent on the renovation. If I pay that off with the HELOC, I'll be making payments on the HELOC instead of the loan. Plus it will no longer be owner occupied and finding a LOC on an investment property usually isn't as favorable as a primary residence HELOC.

I've definitely considered it though, it's not a bad idea.
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Lisa Taylor
Financial Advisor · Minneapolis MN 55405 · Member since 2019 · 30 posts · 5 votes
7y
@Wil Reichard Though an attorney can act as a Qualified Intermediary and facilitate a 1031 exchange, however, as per the rules they must not be related to the investor in any way. Therefore, your personal attorney may not be able to execute a 1031 exchange on your behalf. It would be better if you can look for a Qualified Intermediary, who is not related to you. The fee of a Qualified Intermediary varies from person to person as there are no fixed charges. You can negotiate with a Qualified Intermediary on the pricing or you can talk to one of our advisors and they can assist you with this.
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