Avoiding capital gains tax when selling home

[Brandy Smith]

Hi friends! Florida newbie here again. If I want to sign that “1031 Form” to avoid capital gains tax..how far in advance to the closing do I have to file that? I’m putting on the market in beginning of November when my tenants lease ends. Also, if for some reason I miss the deadline to reinvest? What happens? ..What are some things you’ve done to make sure you close within the deadline? I hope I’m understanding this right, I’m a first timer! :)

[Dave Foster]

@Brandy Smith, the 1031 exchange will officially start with the closing of the sale of your old property.  The most important key is that you must has a qualified intermediary involved prior to that close.  They have to document the sale of the property as a 1031.  And you cannot have actual or constructive receipt of the money.  The QI holds the money and transfers it from sale to purchase.  

The only role the QI can fill is the performance of the 1031 itself.  They are rarely simply an attorney. Since they must be an unrelated party to everyone else in the transaction we are usually a firm that only performs 1031 exchanges. An attorney will generally not have the scale of practice to focus solely on 1031s.  

You will use all of the same professionals and the same process to sell and buy you normally would.  But the QI will be documenting that process and making sure you meet the time and valuation constraints.

The best time to involve them QI officially will be when you have a contract for sale.  But they can have tremendous value for you in helping you plan ahead of time and create the strategy and path that best benefits you.  Like your other questions.

There is no penalty for starting and not completing a 1031 exchange.  So if you cant find a good replacement property you don't turn in your 45 day identification and your exchange dies after day 45.  You get your proceeds back and pay the tax when you normally would with your next tax return.

The best way to ensure success in your 1031 is to be laser focused on where and what you want to re-invest in.  Get your new property into contract as soon as you can (you can even go into contract for your purchase before you close your sale if you want).  Many people will say to broaden your search as much as possible and try to name the maximum number of properties.  That feels better.  But what I see is that actually the broader your search parameters the lower your chance of succeeding due to analysis paralysis.  Be focused so that you know that good deal immediately when it crosses your path.