1031 Exchange questions

1031 Exchange questions

Wichita, KS · Member since 2018 · 3 posts · 1 vote

Hey everyone! Newbie here. :-) 

I have a couple of questions about the 1031 exchange I'm hoping to get answered or at least get a little better understanding on. 

First, we own a property in Mexico that we've been renting out but is not really cash flowing. We have the property listed and are trying to sell it. Can we use money from that sale for a 1031 exchange for properties in the US since it's in Mexico?

Secondly, when our rental properties that we purchase using the 1031 are bringing in rent, can we collect that money that comes from tenants, or does that need to remain in the 1031 for the 12 - 18 months that the 1031 has to stay open?

Thirdly, would we be able to allocate some of the money from the sale of the Mexico house within a 1031 for renovations on the newly purchased rentals or is it set up to allow only for the purchase of the properties? 

Thanks in advance for your help! My husband and I are really excited to be starting this chapter of our lives and to be a (small) part of the BP family!

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Ivy Jones,  Some great questions but unfortunately it starts off with no :(

    1. You cannot 1031 exchange property outside the United States for property inside the US.  It is US for US and Foreign for foreign.

    2. The 1031 exchange starts with the sale of your old property that you held for investment use and ends with the purchase of the new property which you also intend to hold for productive investment use.  Once your exchange is complete you simply use the property as you normally would.  Of course the tax deferral continues while you own it.  But it's a property like any others with no special requirements.

    3.  It's a non-starter for your Mexico place.  But if you were selling a property in the US and wanted to purchase and improve a less expensive property then you could do a process called an improvement exchange.  It involves your QI taking title to the new property until the improvements are done since you can't exchange into improvements on property you own.  It's a little complex but can be very useful in the right situation.

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  • Wichita, KS · Member since 2018 · 3 posts · 1 vote
    8y

    Thanks so much, @Dave Foster!

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