All Forum Posts by: Robert Hetsler

@John Thedford is correct on two items, one is that @Dave Foster is the local 1031 expert and he has earned that respect as I have had the pleasure of meeting him in person with our wives and he is simply a basket full of knowledge.

Having said that, the second thing that @John Thedford is correct on is the interpretation of like kind exchange, it is really very broad when deal with real property.  It is actually easier to identify what does not qualify and that is really your primary residence.  The short version of the rule is that selling investment property with the intent to buyer other investment property  and hold for the foreseeable future.  The IRS does not provide specific holding periods except when direct family is involved in the transactions and then it is sets forth a 2 year requirement so the conservative tax professionals will state two years is the holding period but I want to be clear that is not set in stone.

At the end of he day, you need to be able to state with confidence that the house you are liquidating to purchase investment property (lets define it as property purchased or held with the intent to hold for the foreseeable future) was investment property using my definition.  That is my take on it.  It also becomes a business/probability decision as well because the reality is that I have been doing these for right around 14 years and have handled several a month that have exceeded 20 plus million and never once has a client be selected for an audit.  Let me be clear, that is nothing I have any control over and I seriously doubt the IRS is scared of me in anyway but I am stating it is in such a way that when issues tend to blur the lines a little, that has to be a consideration.  You need to determine the negative and positive outcomes and weigh the positive and negatives against each other to make that decision.  Remember, Tax Avoidance is legal and Tax Evasion is not Legal!

I do and I know 2 or three actually.  Can you be more specific, off the forum, in terms of price range and commercial or residential as I have a database of them as I refer to agents everyday because it is inherent in the work I do.  See my email below if you want a direct referral

It is tough to get all of those in one solution. I guess it really depends on which of those three things are the most important and what type of money you are putting into the deal. I have dealt with some TIC providers, a little different than the traditional in that they focus on the medical side and only in new construction and you can meet the first two goals but the third is not there with pretty much any TIC because of the secondary market issues. The other option is DST's but they allow for debt so that is a perceived risk to some individuals.

Beyond a TIC or DST of some sort, you are going to have to purchase something you find and either manage or hire someone to manage. I am happy to brainstorm with you over the phone and send you some names in private as they do not allow that directly here on the platform. Bottom line though is it will be hard to tackle all three of those goals evenly because all options will be stronger in one area than the other and vice versa.

Sorry I could not be of more help but maybe someone else will be able to offer some solutions.

The answer is that if you do it, it would be an uphill battle and that is because the Qualified intermediary would have to have a valid real property ownership.  I have seen this done, but you must absolutely have an attorney involved, where it is structured so that the QI has 30 year leasehold interest and rehabs the property as part of that interest and at the end of the rehab or the 180 days, whichever occurs first, the lease is assigned back to you as the property owner.

Again, this is generally a no answer and I would say no as well.  I merely just pointed that out because I saw a rather large transaction, involving over a hundred million dollars done.  The structure of the transaction was tested with the IRS first in terms of requesting and securing a rev ruling that permitted it but it was a very factually intensive case so unless there is a significant amount of money at issue, I am saying no. 

I would be interested to hear if anyone has a different response and, if so, I would welcome the discussion or strategy as I am asked this question, at some level, on a weekly basis.

Sorry Eric, I hope for your sake, I am wrong but I do not think so as there are many reasons this one fails in my opinion.

@Dave Foster is always, albeit unintentionally, showing off!  All joking aside he is, without a doubt, extremely knowledgeable and his guidance is invaluable.   Great response Dave!

Yes, But the structure of the exchange needs to be such that it is an improvement exchange for the property to which you plan to utilize the hundred thousand for repairs.  You are prohibited from taking ownership of the property and subsequently engaging in the repairs as that would not work.

 Also you need to ensure that all of the "net proceeds to seller" at the closing of the initial property, is rolled into the exchange and not taken out being that you are taking on a greater debt.  However, this can be accomplished but it would need to be done after you purchase the replacement property. For example, the day after you close on the purchase of the replays of property, you could take out the equity line on the property there by pulling out equity for repairs.   However, in order to qualify for the maximum tax deferral benefit, given the fact pattern above, it appears as if an improvement exchange is going to be the best method to accomplish your goals because the properties  you are purchasing do not, even when combined, it is a value needed based on the sales price of the property being sold.    If you have no intention of pulling money out for personal use, an equity line pulled out after closing on the replacement property is of no benefit to you

 By way of a disclaimer, my recommendation is limited in that I have only been provided the facts above and should other facts be provided, the advice/recommendation would likely change.  In the meantime, I hope this gives you something to think about.

I have done thousands over the years and so has @Dave Foster who I think you will find is very popular on this site because of his superior knowledge and skill set as well

you do not need one but you certainly want to use some sources that I believe that they have on this site which are a source to check on credit, criminal records and always check resources provided.  I started my first rental without a professional to assist me on that rental and  ever since I have always utilized a professional as I find they are worth their fee every time because of the detailed walkthroughs during the initial inspection and all the time

@Bill Exeter is dead on correct.

you need to get in touch with a qualified intermediary.  I provide this service but so does @Dave Foster.  As long as you are purchasing something for equal or greater value, utilizing all the proceed from the sale and having the same or greater mortgage, you are good to go.  Of course, you can reduce by reasonable and necessary closing costs.  As you have articulately pointed out, the mortgage is not a closing costs so it need to be added back in.  Thereafter, as soon as the day after the closing on the replacement property, you are certainly free to pull equity out which will not result in a taxable event so you appear to already have a fairly good understanding of the process but I do not see anything glaring out as incorrect.