Here’s some of our FAQs
We list lots of questions and answers below. But if you have questions about your specific 1031 exchange situation, please schedule a consultation and we will be glad to help you.
Why is an accommodator needed?
What is a qualified intermediary?
How can I qualify to pay NO taxes when I sell my property?
As long as your property has been used for investment, you can qualify! Section 1031 of the IRS code lets you sell your property and buy a new property without paying any taxes if you simply follow the specific rules. That’s where we come in to help. As a professional qualified intermediary, we’ll help you qualify and gain the advantages of a 1031 tax-free exchange.
Can I get legal advice from you?
Can I finance the sale of my property (seller carry back note)?
Do I have to spend everything in my 1031 account?
Can I avoid paying taxes forever?
What exactly are the tax advantages in exchanging?
Are there reasons to exchange rather than tax advantages?
What kind of real estate qualifies for a 1031 exchange?
Can I buy a new property before selling my old one?
If you cannot purchase property that you have identified and the taxpayer is within the 45 day identification period, correction or substitutions may be made to the identification. If the taxpayer has identified property and has passed the 45 day identification period, other property cannot be substituted.
Please call us at 866-944-1031 for more details.
There is no holding period if you want to exchange the property. You can exchange the day after you buy a property. Remember you don’t want to be considered a dealer or speculator so be certain not to have a contract on the record to SELL before you have actually closed on the property you are BUYING..but you can enter a contract to sell right after you buy.
There are no actual holding rules given by the IRS. Many tax advisors advise that the property be held at least 12 months prior to the exchange. The amount of time the property is held is not the only thing the IRS looks at when determining the validity of a 1031 Exchange. Another important factor is the intent to hold the property for business or investment use.
Property(ies) to be acquired must be identified and delivered by midnight of the 45th day following the date of close of the relinquished property. All replacement property(ies) must close escrow by midnight of the 180th day following the date of close of the relinquished property. For the most part, the 45 day and 180 day limits cannot be extended. However, the IRS has issued extensions to areas affected by natural disasters. Your accommodator will have the latest information regarding limit extensions. An example of an extension issued by the IRS is here.
The exchange must be completed by the tax filing date of April 15th unless a taxpayer files for an extension to file federal and state tax returns. Once the extensions of time have been filed, you must complete your 1031 exchange transaction within the 180 days before you actually file your Federal and state income tax returns.
A related party is but is not limited to, immediate family members, such as brothers, sisters, spouses, ancestors, and lineal descendants. A corporation, limited liability company, or partnership in which more than 50% of the stock, membership interests, or partnership interests, or more than 50% of the capital interest or profits interest owned by the taxpayer is also considered to be a related party. The executor of an estate and the beneficiary of the estate in a trust are also considered related parties. A taxpayer can SELL a property to a related party and acquire like-kind replacement property from a non-related party without violating 1031 rules, however, both parties must hold the respective properties for a minimum of 2 years to qualify.
The 3 Property Rule limits the total (aggregate) number of like-kind replacement properties that you can identify to three (3) potential like-kind replacement properties. The vast majority of Investors today use this three (3) property identification rule.
The 200% of Fair Market Value Identification Rule means that you can identify more than three (3) like-kind replacement properties as long as the total (aggregate) fair market value of all the identified like-kind replacement properties does not exceed 200% of the total (aggregate) net sales value of your relinquished property(ies) sold in your 1031 exchange. The limitation is only on the total (aggregate) identified value. There is no limitation on the total number of like-kind replacement properties.For example, if you sold relinquished property(ies) in the amount of $2,000,000 you would be able to identify as many like-kind replacement properties as you want as long as the total (aggregate) value of the identified like-kind replacement properties does not exceed $4,000,000 (200% of $2,000,000).
Lastly, the 95% Identification Exception is an exceptionally useful tool under the right circumstances but can present some tricky problems. You may need to identify significantly more like-kind replacement properties than the first two identification rules permit. There is no limit as to the total (aggregate) number or value of identified like-kind replacement properties permitted under the 95% exception as long as you actually acquire and close on 95% of the value identified. However, if you do not acquire and close on at least 95% of the value of the identified like-kind replacement properties the entire 1031 exchange transaction will be disallowed.
IRS Form 8824, Like Kind Exchanges: Requires that you provide the IRS with the description of your relinquished and replacement properties, the date your relinquished property was acquired by and conveyed to the buyer, the date the like-kind replacement property was identified to your Qualified Intermediary by you, and the date the like-kind replacement property was acquired by and conveyed to you. These last two (2) items are to ensure that you have complied with the 45 calendar day identification rule and the 180 calendar day 1031 exchange period. IRS Form 8824 also asks for any related party information. Click here to download IRS Form 8824.
IRS Form 4797, Reporting Gain: Any taxable gain recognized will be reported on IRS Form 4797 or Schedule D depending on the character of the relinquished property. Your taxable gain must be allocated between ordinary income depreciation recapture, unrecaptured Section 1250 taxable gain, Section 1231 taxable gain, and capital gain.
IRS Form 6252, Installment Sales: You may be able to report all or a portion of the taxable gain under the installment sale basis pursuant to Section 453 of the Internal Revenue Code if you accepted a seller carry back note as part of the consideration from the buyer of your relinquished property by completing IRS Form 6252.