1031 EXPERIENCED SHARP SMART PERSON

3 Replies

Hello

We are selling our multifamily building and wanted to do a 1031 exchange. However we have found an upleg however the purchase is less than the selling price.

We have a couple questions about reverse exchanged also.

If there's anyone who specializes in 1031 exchanges or could refer us to someone who you think could help us we'd be very thankful

Stephen

Thanks @JD Martin@Stephen Cucc , in general a reverse exchange doesn't change the statutory order of a 1031.  You must close the sale of your old property before you take title to your new property.  What happens in a reverse is that the QI for the 1031 takes title to the new property and holds it (maximum of 180 days) until your old property sells.  Then you can complete your exchange.  And you sold your old property before you took title to the new property.  You just took title from a different entity.  And it was under your control and use while that entity held it.

A reveres solves the issue of having to purchase the new property before the old property closes.  And it also might solve some valuation issues for you.  If you want to defer all tax. you must purchase at least as much as you sell.  But if that new property you're looking at needs significant improvements then a reverse improvement exchange would fix that.  While the QIs entity (called the exchange accommodating title holder) holds the property you can improve it (even with funds from your exchange account if you want).  And then when you take title you are taking title at the cost of acquisition plus improvements.  So everything comes from the 1031 and you are purchasing more than you sell.

They're complex and pricey of course.  But can be well worth it.  Rather than get into deep weeds I'll send a pm to you if you want to continue the discussion.

@Stephen Cucc, I've done hundreds of "reverse" exchanges. Happy to help here in any capacity. 

I'll outline a little bit here for you now:

Trading down in value
- to the extent your purchase property is less valuable than your sale property, you'll pay taxes on the difference. 

- your closing costs will help here, as they reduce the net sale price when you sell and increase the net purchase price when you buy

- you can always purchase a second asset to close the gap as well

Reverse 1031 exchange
- if at all possible, try to push forward the purchase closing or speed up your sale. Regular exchanges are less expensive, less complicated, and carry fewer tax risks. 

- the main reason that reverse 1031s are tough is that the IRS won't let you be on title to both properties (upleg and downleg) at the same time. 

- your 1031 intermediary can set up a new holding company to either purchase the property you want to buy or the property you want to sell to execute a "reverse" exchange. Ultimately the format will come down to timing and financing considerations.

- if you're working with a lender for your purchase, make sure that your QI can discuss the structure with them.  These types of deals tend to scare off traditional lending sources.