1031 Exchange Ideas - Land Sale to Investment

1031 Exchanges
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1031 Exchange Ideas - Land Sale to Investment

Garrett Kuhn
Specialist · Indianapolis, IN · Member since 2018 · 5 posts · 3 votes

To make a long story short, a friend of mine's family has received interest in their farmland from developers. If they are to sell the land, they would come into some money that they had previously not had access to. With capital gains taxes they would like to explore the option of a 1031 exchange. Currently, their land serves as an investment property. From my understanding, you can only 1031 similar assets. Their questions are: 

They know in this competitive market it is hard enough to find one good deal. BUT, is it possible to 1031 exchange one investment property into multiple investments? (multiple SF, duplexes, AirBNBs, blend, etc.) 

They are tentative, with the recent pandemic, of throwing all of their proceeds from the sale at one large investment. IF you can not exchange one property for multiple, would one singular investment property be ideal? 

Lastly, if you were in their shoes, what sector of real estate would you research to possibly invest in? 

Thank you in advance for your insight. Love hearing different perspectives. 

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    5y

    They can swap their total proceeds in to multiple properties. (Any cash they keep or any amount they spend less than their proceeds will be taxed. So usually ti ends up be close to an all or nothing deal.)  If they identify more than 3 properties they run in to rules about how many properties they have to end up buying. There’s really not very real estate investments like bare land. At least they’re aren’t facing a 25% depreciation recapture tax. Find out how much work they’re willing to put in, because it will be more than vacant land. 

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    "Like Kind" means any type of real estate used for investment.  So they can sell the land and purchase any number of any type of investment real estate they want.  As @Bill B. said there are some rules they have to follow in identifying their replacements that can impact what they actually purchase.  But in general any type and number of investment real estate.

    One strategy that might benefit them is to take the proceeds and allocate them in the 1031 where they buy a number of replacements for cash.  And use some of the proceeds as down payments on other assets.  This lets them concentrate their proceeds as much as possible and lessens the number of properties they have to buy to satisfy the 1031 exchange.  It also gives them some lowered debt risk.  And with the debt free replacements they can do cash out refis to access cash when they feel it is a more advantageous time.  And they won't be subject to the time constraints of the 1031.

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