Inherited a singe family home 12 years ago (owned equally between 3 parties). One of those years it was rented to a tenant (8 years ago). All other years the house was simply a mountain getaway for the family.
The house is currently under contract to be sold. If and when the sale is final, should I plan for a 1031? I already have a plan to reinvest the funds back into real estate within 90 days post closing.
Any personal stories, experience or advice or truly appreciated. Please, let me know if you need more details related to my specific situation. Thanks BP
@Dave Foster can shed expert-level light on this. Once the deal is closed and it's sold, it's too late. You need an intermediary involved before that. Get talking to them now if this is something you want to do, Dave can help tell you if it's too late now or not.
@Taylor L. Thank you. Closing is scheduled for April 21. And from what I have learned so far, I need an exchange since the property is considered an investment property.
Thanks for tagging Dave for expert advice.
@Clay Massey the property qualifies for a 1031 exchange provided it is "held for investment or use in a trade or business". In your case you can suggest the property has been rented earlier and then held onto for appreciation, which the tax courts have ruled qualifies as a valid investment "use" for 1031 purposes.
Whatever you reinvest into of course must have the correct usage as well. You should speak directly with an intermediary to discuss how to demonstrate the correct usage and intent.
Let me cover the basic rules here and you can ask questions as they occur to you.
The 1031 Law (speaking practically)
These rules apply to any exchange:
- Must complete within 180 calendar days of the sale of your relinquished property
- Must identify up to 3 replacement properties within 45 days
- Only complete tax deferral if the final value of the replacement property is worth at least as much as your net sale price for the relinquished property.
- If you trade down in value, the difference is taxable
- Keep the same taxpayer across properties
- You can exchange into (and out of) any state and many US territories
- There are lots of different assets that qualify as valid replacement targets in a 1031, so think broadly
@Sean Ross Thank you. Coincidentally I was on the phone earlier with your office (1031x.com) and was directed to work with Toni. The information I received over the phone was a huge help. Thanks for taking the time to respond.
@Clay Massey very cool to hear. Toni is one of our best coordinators so you are in good hands!