All Forum Posts by: Andrew Albritton

 Thanks for your response Bill.

My goal is to simply prevent them from losing the farm. I would pay them whatever the sale of my property yields, minus any taxes incurred due to not taking a mortgage out. There are a lot of circumstances that go into the situation, but I promise you I am not trying to take advantage of the situation. I am simply trying to offer a solution that is fair to both parties that allows the property to stay in the family.

The biggest problem is they are having trouble refinancing the property due to credit balances. My MIL owns a floral business and apparently the credit card she uses for her business is keeping her from refinancing. I don't know the whole story there, but it may be worth getting an explanation to figure out solutions

 Thanks for your response Theresa! I understand I should seek further guidance, I'm just conducting preliminary research to formulate a course of action. A lot of times the different viewpoints lead to different questions to ask.

In regards to your replies:

1) I'm no legal expert, but it seems the sections of tax code you mentioned don't consider in-laws to be a personal relationship that would prohibit the transaction. Is that a reasonable assumption?
2) In regards to the trust, if my wife is a trustee (daughter of the aforementioned in-laws), does that make the transaction no longer "arms length", or does the trust allow the necessary distance to allow the transaction?

3) I am aware that the rent must be market rent, I do wonder if using the 1031 transfer to buy my in-laws property and then immediately renting it back to them would raise any red flags.

Thanks

My in-laws own a 40 acre almond farm in Central Valley, Ca with a 3200 sq. ft. house on it. To make a long story short, they are no longer able to make payments on the property and are in danger of losing it.

I have a rental property in Southern California that I currently own whose value if I sell should cover the outstanding loan balance on the farm. My idea is to 1031 the SoCal property into the in-laws farm and rent back to them for a minimum of two years, and then decide if we keep renting it to my in-laws, or move my family into it. I realize I must hold onto the property for at least 5 years.

Questions:

1. I assume 1031 exchange is possible as in-laws qualify as an arms length transaction?
2. The property is held in a trust of which both my wife and I are trustees. Does the property need to be removed from the trust and put into my name only? I purchased the property before my wife an I were married and only created the trust after my daughter was born. Up until that point the property was solely in my name.
3. If I decide to occupy the property after 2 years, and decide to sell the property after 5, do I owe the full deferred tax amount, or are the taxes "prorated" based on the ratio of time the property was investment/primary?

Thanks in advance

My inlaws have very little to do with the day to day management of the farm, my MIL is just inheriting her portion due to the passing of her father, so I know even less of the details. 

They are in the process of selling it now, the family just wants to exit the business. 

I'm pretty sure farming isn't easy work, but again, I have no experience with it.

The land does have an irrigation well(s). Not sure how many, but enough to irrigate all the trees on the land. As far as "legal water rights", I have no clue, but I'm sure everything is in order as they have owned the farm for a long time.

They do have workers, there are thousands of trees to take care of.

I have no idea on income, but from what I understand almonds are pretty lucrative. Central Valley California grows something like 80% of the world's almond supply. I'm sure the market varies year to year though.

There is a hulling building/equipment with office space. This allows them to take contracts with other growers to shell their product as well. I would assume all farm equipment is included with the sale. The land also has a ~3500 sq ft house on it that MIL's parents occupied, seperate from my inlaws place. No strawberry bushes, but various fruit trees (persimmons, oranges, grpaefruit, etc)

No idea about the condition of the farm equipment.

They aren't looking to owner finance, so you would have to come with a check for the full amount at closing.

Sorry, no almond milk bearing animals

I don't believe the farm is organic

@Dave Foster, awesome, thank you for the insight. 

I'm trying to compile some strategies for them. Their situation has a lot of moving parts. Not only are they looking at the sale of the 600 acres (which the step up basis hopefully should take care of a lot of the capital gains) and their primary residence, but they also have a plot of land on the other side of town that they invested in with MIL's siblings that will be subject to capital gains. I have a list of questions that if you have answers to, I would appreciate hearing your thoughts:

1. As they are not in control of the land sale, and the timing of it, is there an option to keep the proceeds in an escrow account or some other method to execute a 1031 exchange beyond the 45/180 day rule? or is that rule final?

2. It is my understanding that a vacation/second home can be purchased with the caveat that it must be rented at minimum 14 days per year for at least 2 years, while personal use cannot exceed 14 days or 10% of days rented, whichever is less. After the 2 years, is it safe to use the property as you please, or is there some sort of paperwork/form to convert the property to personal use? How many properties can this be done with, either concurrently, or at different times? Can this be done for a primary residence as well? Buy property, rent it out for 2 years, convert it to primary?

3. Can they use a 1031 exchange to buy my wife an I's house, and then rent it back to us at FMV? Would I need to have my wife file a quitclaim deed to make it work?

4. They have made it known they wanted to give my wife and her sister money as a down payment for a bigger house once the propert(ies) sell. If the above situation is allowable (question 3), does the purchase price have to be at FMV, or can they buy the houses at a higher price, using the 1031 to shield against taxes? If so, if the houses were sold at a loss in the future, could the loss be counted against the carryover capital gains from the original property(ies)?

 So it's possible to rent it out for a period to make it eligible for a 1031 exchange, and still be able to use the primary residence exclusion? They can be used concurrently?

Hi all,

My inlaws are considering selling their home that is sitting on 5 acres surrounded by 600+ acres of almond farm that was owned by MIL's father, that she is inheriting along with her 5 siblings. The farm is in the process of being sold, and I'm assuming the step up cost basis will save them considerably in taxes (unless I'm misunderstanding the definition of that rule). Are there any costs/taxes involved in this sale that I'm not considering? I suggested a 1031 exchange if the capital gains turn out to be large enough to trigger an expensive tax bill.

As far as their personal residence, they are due to profit well above the $500k allowance for tax avoidance (not sure of the proper term... it's late lol). Are there any other avenues that might be possible to save them from a big tax bill? They are both on Social Security, if that matters.

I plan on attending local REI club meetups, maybe I can get a pulse on what others who are more experienced are up to.

Being within a 2 hour drive of San Francisco has me contemplating how the market out here would react if California ever finishes the high speed rail that has been in planning. That will allow an easier commute from the central valley and hopefully drive prices up.

I hear what you're saying. I would almost be willing to be cash flow neutral on another property if I knew that rent increase and the type of appreciation that the area is seeing right now would continue. However, I realize that real estate is probably later in the cycle and am assuming that the growth can't go on forever, so I'm stuck in the indecisiveness of trying to wait until the market drops, or finding the best deal I can and hope for the best.

From what I have read on this site, there are plenty who are very successful doing so. Gathering the knowledge and confidence to feel like it's an investment decision rather than a gamble is the part I need to overcome.