Last minute capital gains strategy for CO condo sale

Member since 2019 · 15 posts · 15 votes

Posting for a friend (like, really I am). She needs strategies to avoid capital gains for a sale coming up in a few days. Owner is a NY resident. Subject property is a condo in CO. Sale date: Monday Nov 8, 2021. Ownership since 2010. Owner-occupied for 6 years. Rental for 6 years. Never took depreciation or upkeep/capital improvement expenses on schedule E but always claimed full rent income. Owner wants to avoid capital gains in any way possible but she has no prospective properties for 1031 exchange. So she's researching extensions to 1031 exchange due to covid, self-directed IRA setup, conveying the property into an existing regular 401k before the sale. The issue is the short time period before the closing. Thanks in advance for thoughts on avoiding cap gains!

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Joan MacDonald, If she wants to keep her options open to 1031 and defer that tax she has to have her qualified intermediary in place prior to the closing of the sale. From that date she has another 45 days to find possible replacement properties. But if the QI isn't in place at the time of sale her ability to 1031 is done.

The last covid extension expired way over a year ago (I'm losing track of time this has been so tedious). So there is no opportunity for her to get anything like that.

Best to start the 1031 and then if she can't find a good replacement let the exchange die on day 46 by not turning in a list. She gets her proceeds back right then and pays the tax when she normally would have.

Another possible option is that if her 45 days expires after 1/1/22 she will get to defer the tax until April of 2023.

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Scott WolfPro Member
Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 959 votes
4y
@Joan MacDonald, a 1031 seems like her best option. She can 1031 into a Delaware Statutory trust, or use the 45 day identification period to find a property. A QM, such as 1031vest, can get this set up quickly before the closing.
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Sheri Ottosen
Member since 2021 · 1 post · 1 vote
4y
Has your friend considered a syndication opportunity? Equity Multiple offers these and will let you do a 1031 exchange but I believe you need to be an accredited investor. I’ve never actually invested with them so this is only a suggestion rather than an endorsement. Good luck!
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
4y
@Joan MacDonald, If she wants to keep her options open to 1031 and defer that tax she has to have her qualified intermediary in place prior to the closing of the sale. From that date she has another 45 days to find possible replacement properties. But if the QI isn't in place at the time of sale her ability to 1031 is done.
The last covid extension expired way over a year ago (I'm losing track of time this has been so tedious). So there is no opportunity for her to get anything like that.
Best to start the 1031 and then if she can't find a good replacement let the exchange die on day 46 by not turning in a list. She gets her proceeds back right then and pays the tax when she normally would have.
Another possible option is that if her 45 days expires after 1/1/22 she will get to defer the tax until April of 2023.
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Joan MacDonald
OP
Member since 2019 · 15 posts · 15 votes
4y
@Dave Foster @Scott Wolf @Sheri Ottosen, if the property named within the 45 days on a 1031 exchange falls through, can the buyer change to a different property? Asking a different way- can a potential property be input as a placeholder for the 1031 and after the 45th day (but before 180 days) another property is purchased? I messaged all of ur replies to my friend and (once she's finished working) she'll potentially contact those of you with businesses. Thank you
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
4y
@Joan MacDonald, Nope. you can work on any property you want during the 45 days. But on day 46 the list is fixed, cannot be altered. And in order to complete your 1031 exchange you have to purchase one of more of those properties that are on the list.
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