1031/Buyer transfer Advice

[Alex Becker]

Looking for some advice on a rather unique situation - I have a buyer looking to purchase a property they fell in love with for $1.75M using a 1031 from a $2.4M property, however the seller is unwilling to accept any contingencies; I also have another investor with ample funds; if my investor was willing to purchase the $1.75M property and turn around to sell the property to my buyer (for a premium)

Assuming highest capital gains bracket, in state of TN (I believe only 1% local Capital Gains tax for <1 yr); what sort of resale price would I need to aim for for my investor to net, say $100k for his troubles? Or alternatively - what if my investor then used a 1031 to purchase another property?

Thanks!

[Dave Foster]

@Alex Becker, Good creative thinking!  That's actually a form of a reverse exchange.  But it is a form that does not comply with the safe harbor of revenue procedure 2000-37.  That doesn't mean it cant work.  But the IRS has given clear direction that it does not prefer non-safe harbor arrangements over the last decade or so.  

So your client has a choice -

1. Perform it the way you are envisioning.  No guarantee.  And potentially a more risky proposition with the need for expensive attornies.

2. Perform a safe harbor reverse exchange (still using your angel investor but involving a 1031 QI).  You get the safe harbor from the IRS and no need for expensive attorneys.  But you spend an additional $8000 or so on the safe harbor reverse.