All Forum Posts by: Jeff Klein

Dave,

I found out that there is a type of irrevocable trust that will report its income under my taxpayer ID. It's called a Spousal Limited Access Trust (SLAT) 
SLAT Trust - What Is A Spousal Lifetime Access Trust? | White Coat Investor

I will confirm with my attorney that moving my real estate investment to such a trust will preserve the integrity of the 1031 exchange, and if so, seriously consider it.

I know you're not a tax or estate planning attorney, so just FYI.

thanks

Thanks for your answer about exchanging into revocable trusts. Your point about a disregarded entity makes sense.

I posted the question for estate planning reasons. The other option suggested by the estate planning attorney is moving the TIC to an irrevocable trust. Disregarded entity would not apply to irrevocable trust. So that wouldn't work in a 1031 exchange?

I have a TIC share. I would like to exchange into a property, also TIC. My current TIC is in my personal name. In the exchange I would like the new property to be one half in a revocable trust in my name and one half in a revocable trust in my wife's name. In other words, I would be gifting half to my wife. Is that possible? Or do I have to change the form of ownership before the exchange? (I would really like to avoid that.)

The alternative would be to exchange it into an irrevocable trust. But it's not my preference.  Is that possible?

UPDATE:

I am exchanging 4.2M. I will be one of three TIC members. My share of the equity and ownership will be 17%. The purchase price is 64M with equity of 24.3M. It is a 360 unit multi-family built in 1999 which underwent an 8M renovation in 2015. It is in good condition and initially requires just some cosmetic work. The total reserve fund will be3M -3.5M and my part will be 17% of that.

I understand that whatever amount is in the reserve is effectively added to the investment. And the initial amount (about half of the reserve) is due at closing and will be for closing escrows, including a four-month property tax escrow, and other closing costs. The remaining reserve funds (1.5M-2M) will be for maintenance needs. I will contribute half of my required reserve amount at closing. I will contribute the rest in installments. I will receive cash flow based on my exchange amount (4.2M) + my TOTAL reserve amount even though I have not yet contributed that total reserve amount.

The sponsor/manager is confident that the amount in the reserve fund will be adequate (he says more than adequate) and that there will not be a need later for additional funding. At the time of the sale of the property the remaining balance in the reserve fund will be distributed proportionately to the TIC members.

I have trust and confidence in the sponsor/manager and they themselves will have a significant investment in this property.

Sound ok?

Dave,

Just to clarify what you said I'll put it into a simple formula. Please correct me if I'm wrong.

cost basis of new property = cost basis of old property + (purchase amount of new property - sale price of old property)

ok, I'll be specific to my situation. 

I'm going into a TIC. Let's say that the purchase price of the replacement property is 50M. The equity is 20M. My portion of that equity is 4M (that's 20%). Let's say that my cap gain + depreciation taken on the old property totals 3M. Would the cost basis = (50M x 20%) - 3M ?

 Or am I just way off on this?

After a 1031 exchange, depreciation is tax deductible from the income generated by the replacement property. Is the depreciation amount based on the cost basis of the old property or the cost basis of the replacement property? 

Hi Frank,

I live only about 15 miles from you.

Thanks for your comment. Regarding the CPA, I just received a recommendation for one who is experienced in 1031 exchanges. 

Obviously he will be a necessity for my 2018 tax return. I'm wondering how he can help me in the very near future regarding reviewing the TIC paperwork (which I will be receiving in a few weeks) and maybe even evaluation of the feasibility of the investment. Of course I will ask him when I call him but before I do maybe you or someone else here has a suggestion.

I have contracted to sell my property with the intention of doing a 1031 exchange. I will close in about a month. I will have identified a property to buy by then. I will be a TIC member in the purchase. I have a QI.

This may be a naïve a question but here goes: Do I need an attorney for this purchase? I think so, but just want to be sure. I will ask the attorney that I'm using for the sale but not sure how experienced he is on the purchase side of a 1031, especially for TICs (if TIC makes a difference).

Also, do I need a 1031-experienced CPA before I make this purchase?

Dave,

The contract already has this paragraph:

"if Seller or Purchaser is or may in the future be under contract with a qualified intermediary for the purpose of effecting a tax-deferred exchange in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, each party consents to the assignment of this contract to such intermediary. Each party shall cooperate with the other and with the qualified intermediary to accomplish such exchange and shall perform any acts and execute any and all documents reasonably necessary to assist in such exchange, provided that neither party shall be required to accept title to any property other than the Premises, expend any additional amounts of money above those amounts for which it is obligated under this contact or extend the Closing Date, and Seller’s time to close under this contract shall not be reduced."