All Forum Posts by: Bill Exeter

Hi @Ishmael Johnson, 

Yes, it is done all the time.  Generally, you need to replace the debt that was paid off on the sale of your relinquished property with new debt on the purchase of your replacement property.  You can always buy the replacement property with all cash if you want to replace the debt paid off on the sale of the relinquished property with new out-of-pocket cash.  

Hi @Carlos Vega, 

Yes, this can be done.  Your friend would 1031 Exchange into a tenant-in-common ownership position (percentage ownership) in the new property and you would own the balance of the property as a tenant-in-common with your friend as co-investors.  It is done all the time. 

@Benjamin Aaker, 

Your proposed structure will not work. Setting up an LLC with two or more investors coming together in the same LLC would be treated as if the party doing the 1031 Exchange is actually buying a membership interest (partnership interest) in the LLC, which would be treated as a partnership for tax purposes. It would not qualify for 1031 Exchange treatment because the "taxpayer" doing the 1031 Exchange has changed. The purchase of a partnership interest is specifically excluded from 1031 Exchange treatment.

Hi @Bill B., 

No, the conversion to a primary residence is not considered a taxable sale.  

Hi @Zac Davis, 

The answer depends on the other owner in the 50/50 entity.  Is the other owner related to you?  If not, as long as you do not own more than a 50.0% interest it would not be considered a related party and you could 1031 Exchange into the property when you are ready.  However, if the other party is related to you then it would be a related party transaction and other factors and questions would have to be addressed to see if it would/could qualify.  

Also, if either property is located in Idaho the Qualified Intermediary has to be licensed by the state of Idaho or they have to be exempt (such as being licensed by another state regulatory agency).  

Hi @Nancy Brewer, 

Here are answers to your questions. 

1) The house that you acquire through the 1031 Exchange must be held for rental, investment or business use.  It would not qualify if you live in the house as your primary residence.  You can certainly acquire the replacement property as rental property and then after a couple of years decide to change your intent and convert it to your primary residence, but your initial intent and usage must be rental or investment. 

2) It will depend on the community and the builder. Many will accept earnest money deposits (EMD) and will work with Qualified Intermediaries. They rarely have a relationship with a Qualified Intermediary, so you would need to choose your own Qualified Intermediary.

3) Yes, the California Claw Back will apply.  California has always taken the position that it is tax deferred as long as you keep exchanging, but as soon as you cash out they will want their share of the taxes.  You also have to file an annual information return with the California Franchise Tax Board to report that status of the property. 

4) There are no extensions of time, so if the construction takes longer than 180 calendar days you will have a failed 1031 Exchange.  There are no Federal or state penalties for a failed 1013 Exchange, but you will pay the taxes.  This is one of the risks with new construction.  

Hi @McKoy Allred, 

You can sell them to individual buyers or sell them in packages as part of one 1031 Exchange transaction.  The closing of the first sale triggers the beginning of your 45 calendar day identification period and 180 calendar day exchange period, so timing of the closings is critical.  

Hi @Adrianne G., 

Yes, since it is an investment property you would be able to structure a 1031 Exchange transaction and reinvest in other investment properties.  You do not have to make your offer contingent upon your 1031 Exchange (although it might be safer to do so); it is really the paperwork that the Qualified Intermediary drafts along side/with the transaction that matters.  

However, if it is not contingent based upon a successful 1031 Exchange you have to be very careful with your closings.  Get you plan together and keep a close eye on the deadlines, etc. 

Hi @Paul Rolloff, 

Generally, the taxable boot is applied toward your depreciation recapture first and then once it has been fully recognized it is applied toward your capital gain and then a return of your cost basis last; the depreciation recapture, capital gain and cost basis are not prorated.

Hi @Nate Pucel, 

The "natural disaster" or fire and receipt of the related proceeds would fall under Section 1033 of the Internal Revenue Code or a "1033 Exchange."  The 1033 Exchange can provide you with a lot of planning opportunities, but is not as flexible as the 1031 Exchange when it comes to definitions of Like-Kind Property, etc.  You should be able to qualify in some way under Section 1033, but more questions need to be asked.  The 1031 Exchange would not come into play at this point in time because there was no sale of the property.  

Hi @Craig Napoliello, 

It sounds like you are describing a Contract for Deed/Land Contract where you acquire the property, have all of the benefits and burdens of ownership, risks and rewards, etc., but legal title is held by the seller until you have paid off or satisfied the debt due.  Contracts for Deed/Land Contracts can be drafted many ways, but generally they are draft in such a way that it does qualify for 1031 Exchange treatment.