who does 1031 exchanges

Question

Has any investor done a 1031 exchange on a 2 family and whom did you use as a qualified intermediary?I need  a qualified intermediary who knows what they are doing

Dave Foster · Answer

@Steve Vaughan,  There's no statutory holding period.  But you need to be able to demonstrate that your intent in purchasing the replacement property was to hold for productive use.  Anything more than a year is pretty standard.  In your case you'd probably want to show a rationale that you were willing to hold on to this property but something happened and a property you'd been waiting on for a long time came available unexpectedly.   Build the picture of an investor intending to hold  and having an event change that intent.

But in reality an option is just an option.  You may have given them that but it simply means that your intent is to hold and only if certain events line up are you going to sell to them.  So a simple option isn't usually looked at as an intent to sell.

Dave Foster · Answer

@Natasha Wilson Not quite.  The Irs es expecting you to roll forward your profit.  That is true.  But to ensure that the rule is that you must purchase at least as much as you sell.  Because any amount you purchase less than you sell is interpreted as taking profit.  You call it your original capital.  They call it profit.

Unfortunately they win the argument.  So you can purchase less than $160000 but you pay tax on the difference just as if you took some profit

Dave Foster · Answer

@David Shives, As much as I appreciate @Joe Splitrock's shout out there are indeed many QIs both here and nationally who can help you.  There should be no difference between documentation and processing for a 2 family vs a SF or Commercial or whatever for that matter.  Unless... You have been living in part of that 2 family.  And that actually opens up some opportunities for you to take some of the gain tax free.

Jump on in the tax deferred water.  You'll like the result :)

Joe Splitrock · Answer

I did a 1031 on a 2 family and the closing company I worked with actually had an in house qualified intermediary. The property I sold and purchased both went through the same closing company. It could not have been any easier.

That being said, there are people who specialize in just this area. One of the most knowledgeable that I know is @Dave Foster. I tagged him, but due to self promotion rules, he can't advocate for himself. My advice is connect with him over IM and setup a call to chat.

There are other QI on BiggerPockets who I am sure would do a great job too.

Dave Foster · Answer

@Bill F. Not worried about you being anti QI.   I'm worried about folks getting into trouble unintentionally from reading or watching something that could lead them down a bad path.  After all this is the age of the unverified info share.  So thanks for adding the clarification.

FWIW - I too find it annoyingly funny that the "Q" in QI is defined by what we aren't rather than by what we are.  I actually use that illustration in classes I teach for realtors to encourage them to vet vet vet QIs.  But never substitute relationship or proximity for experience and expertise.

Bill F. · Answer

Dave, you are conflating my postive statement as normative, which it wasn't. I said that someone could do it, not that you should. You are the one who inferred all those things from my post and made the unilateral decision that I was giving advice, that the 'advice' was bad, and that you needed to correct it with you sales pitch, I mean post.

Now you have created a strawman argument where I'm saying any Joe Six pack off the streets can handle a 1031 as well as yourself, which is patently absurd. I made no suggestions to if trust or experience are more important in a QI, or put forth any argument for one over the other. In fact I never made any suggestion about how anyone should handle their 1031. Nonetheless, you, the great QI white knight, have rode in to save the innocents masses from Bill the Dragon, breathing the fire of bad advice all over their villages.

Allow me to set the record straight, I find it interesting that in the IRC the definition of a QI falls into the category of 'is not' as opposed to "is", e.g. a lawyer is someone who has passed the bar, an EA is someone who has meet all the qualifications laid out by the Dept of the Treasury, where as a QI is not someone who is a relative, close business associate, ect. That's it. I thought it was a fun fact if you will.

I make no assertions nor hold any opinions about what decision making paradigm one should use to make the choice if they should pay a QI or attempt to go it alone; that's up to them.

I hope that has allay your fears that I'm somehow anti QI, but as Upton Sinclair said, "It is difficult to get a man to understand something, when his salary depends on his not understanding it" so I'll temper my expectations.

Have a good one.

Bill F. · Answer

apropos of nothing Steve, other than you may find this interest based on your love of learning to do things yourself, you don't need an "official" QI, from my understanding anyone that isn't an excluded person can serve as a QI as long as they submit the right paperwork to the IRS and withholding agent. There isn't a license required to act as a QI so if you have a trusted friend they could do it for you. I always found that interesting. I guess I assumed that being a QI was like being a CPA or a lawyer in that their was some body that licensed them,  but after watching "American Greed" I learned I was mistaken.

Dave Foster · Answer

@Adam Wigdorski, there used to be a joke in the industry that you needed long enough to set the pen down that you closed the purchase and pick up the pen for the refi :)

Length of seasoning is much more an issue with a refi right before a sale.  That is when the IRS can perceive that you are trying to take profit out ahead of a sale.  When you do a refi after a sale you're borrowing against equity, paying interest on the loan.  So there usually isn't much of a concern amongst accountants with a refi immediately after the completion of a 1031.

Your use of the refi funds will determine whether or not you can deduct the interest as a business expense.  But your accountant will guide you there.

Adam Wigdorski · Answer

@Dave foster

How soon after you close on the new property you are 1031-ing can you cash out refi out.

Example. I have 3 multi units I want to sell and will get around 985 for them.

After agent fees and mortgage payoff that’ll be 326,000 I have to put towards the target property.

My target property is 1,000,000 that I’ll be getting it for but worth 1.25

I’ll be buying it with a 80% ltv commercial note but obviously putting down the whole 326,000

So my loan will be 674,000

Can I literally refi the property the next day after the exchange and pull out the 326,000

1250000 x .80 = 1,000,000 . 1000000 - 674,000= 326,000 cashout refi

My bank requires no seasoning

Dave Foster · Answer

For all,  There's some truth to what @?Billf is saying but a whole lot of not also.

1. There is no required license to be a QI

2. No, a QI does have to do your 1031 exchange unless you are swapping properties.

a. The QI is defined as some one who is not "disqualified by business or family relation to the client.

3.  So , yes a trusted friend could be your QI.

a.Does your trusted friend understand the documentation and subsection requirements for documentation of a 1031 exchange?

.    b. Does your trusted friend understand and carry the correct qualified escrow accounts required by law?

.    c. Does your trusted friend have the ability to indemnify you for the money they are holding of yours to the point where their divorce, bankruptcy, outstanding warrant or judgment will not affect your funds?

.    d. Does your trusted friend have an in depth understanding not only of the 1 page of actual regulations but also the 8000 pages of case law and the associated revenue procedures that actually shape the actual law of the 1031 exchange?

If so, then your trusted friend is probably a QI for 1031s already.  So use them.  If not then be very careful of accepting advice from trusted friends who watched a you tube video.

There's a bunch of good QIs in America including several right here on BP.  It's a disservice to these good folks to judge them on the basis of a TV show.  Vet them.  Question them.  but don't assume they're bad cause they don't live next door to you.  You can recover from "stranger danger" much more quickly than you will from a friend who doesn't know what they're doing and does you a "favor".

This one really aint DIY - Re-read Steve Vaughn's post again about finding competent representation for his 1031s.

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who does 1031 exchanges

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