All Forum Posts by: Bill Exeter

Hi @David Rutledge, 

It is generally the state that you live in as your primary residence.  You should be fine, but check with your accountant to be sure there are no other issues that we are not aware of. 

Hi @David Rutledge, 

California is a community property state, so unless you are treating the property as your sole and separate property and using sole and separate assets to support the property, it is likely already 50% your wife's.  You should be able to sell under your name and acquire as husband and wife as community property.  I would always have your accountant review to ensure there are no other unanticipated consequences.  

Hi @Raj Acha, 

You can exclude up to $250,00 in taxable gain if you are single and $500,000 in taxable gain if you are married as long as you have lived in the property as your primary residence for at least 24 months out of the last 60 months.  I don't think you qualify for this any more.  You can take advantage of this once every 24 months; it is not once in a lifetime. 

You would qualify for a 1031 Exchange, but you would have to reinvest in other rental, investment or business use property within 180 calendar days. This might work if you are planning on buying the real estate that you will be operating your retail business out of. 

The refinance idea above would work, too.  It would not incur any tax liability, but it does incur debt.  

Hi @Michael Flight, 

Brian is right on the money.  Our clients have their Self-Directed IRAs set-up a single member limited liability company ("SMLLC") and do everything that you have asked about inside/through the SMLLC.  

Hi @Peter Walther, 

Yes, Reverse 1031 Exchanges still apply.  You still have the 45 and 180 calendar day deadlines if you want to complete a safe harbor Reverse 1031 Exchange.  

Hi @Mike Reynolds, 

Correct.  The finance amount is just part of how you paid for the property.  The government is really saying that you own an asset worth net $235,000 (ish) and will allow you to defer all of your taxes as long as you remain fully invested at that level.  

Hi @Mike Reynolds, 

The amount that you must reinvest in order to defer 100% of your tax liability would be $250,000.  You would be able to subtract certain closing costs (routine selling expenses) such as your any broker's commission, title, escrow and documentary transfer tax, to get to your Net Sale Price, which would likely be around $235,000 in your case.  

The structure that you describe is referred to as an Improvement 1031 Exchange (Build-To-Suit or Construction 1031 Exchange) where you sell your relinquished property and the Qualified Intermediary would acquire and hold or "park" legal title to the new replacement property.  This "parking arrangement" allows you to spend and construct as much as you can during the 180 calendar day exchange period.  You would be able to defer 100% of your taxes as long as the purchase and improvement costs during the 180 calendar day period equaled or exceeded your Net Sale Price of around $235,000.  The improvements do not have to be completed, but only those improvements that have been completed would qualify for your 1031 Exchange reinvestment requirement. 

Hi @Megan Elliott, 

The proposed structure that Dave mentions could work, but builders/developers will rarely do this.  There are liability concerns if they sell and transfer property that is still under construction, insurance provisions that prevent the developer from selling and transfer uncompleted property, lenders would not allow it, and title insurance companies would likely not issue title insurance. 

Hi @Megan Elliott, 

Yes, you can negotiate, issue a letter of intent, make an offer, go under contract, etc., as long as you do not close on the purchase of your replacement property before you sell your relinquished property.  The dateline that you provided will work fine.  

It is possible to go under contract, purchase and close on the purchase of your replacement property before you close on the sale of your relinquished property.  This structure is referred to as a Reverse 1031 Exchange (Revenue Procedure 2000-37).  It is more complicated and there are more costs involved, so most investors try to structure the regular Forward 1031 Exchange like you have described.  

Hi @Karl Kauper, 

The advice that you have bene given is correct.  You and your wife are selling the relinquished property, so how ever you structure the purchase of the replacement property it has to be considered to be you and your wife as the buy.  

The two-member LLC is treated as a partnership for tax purposes (unless you live in a community property state) and is therefore a completely different entity (a regarded entity). The two single member LLCs are disregarded entities and are treated as if you and your wife are the actual buyers/owners of the underlying real estate. Buying the replacement property in/through two separate LLCs that are disregarded entities would provide you with liability protection and still accomplish your goals of acquiring the property as part of you and your wife's 1031 Exchange.

Even though you are buying with all cash, you might want to discuss with numerous lenders.  Some lenders will not lend to LLCs and some will not lend two multiple parties/entities on title when structured as tenants-in-common.  It will all depend on what lenders you can find that are willing to work with the structure that you choose.  This way you will know what to expect in the future should you decide to obtain financing with this property.