All Forum Posts by: James Bakun

Thanks @Dave Foster

To avoid timing complications, we're thinking he would bring extra funds to replenish the FIRPTA withholding. This would allow us to close on the relinquished property and find a replacement property within 180 days. I assume there is no need for a simultaneous closing since he is bringing extra cash to replenish the withheld amount? 

At the end of the year, he would file a tax return and get the withholding back from the IRS after paying capital gains on the 15% withheld amount. Is that correct?

I have a foreign client who is completing a 1031 exchange, and has decided to bring extra cash to the closing table to replenish the "withheld" FIRPTA amount on the sale of the relinquished property. This will allow us to complete the 1031 exchange. With that said, we will still file the 1031 declaration form and 8288-B form with our CPA in hopes that the certificate gets back in time before closing. I just have 2 questions:

1) How can he eventually retain the "15% withheld" funds from the escrow account? Do we have to show proof to the buyer that he has settled the capital gains tax and/or provide the IRS certificate? 

2) Since he is replenishing the "withheld" sum, is it possible for us to close the replacement property on a different date? This would allow us to bypass a simultaneous closing and buy a new property within a 180-day timeframe to fulfill the 1031 exchange requirement.

Thanks all! Based on your responses, the safest route to avoid FIRPTA tax is to do a simultaneous exchange. I personally don't feel comfortable waiting for the IRS to "maybe" approve the 8288-B.

It seems nearly impossible selling 2 relinquished properties and purchasing 1 replacement. With that said, they will unfortunately have to only sell 1 relinquished and purchase 1 replacement to avoid the risk of FIRPTA  :-(

Do they have to submit anything to the IRS when the relinquished property is under contract? How do we explain to the buyer that there is no need for 15% withholding because they are closing on a replacement property the same day?

@Melanie P. Unfortunately they are not in corporate ownership. They own the properties in their personal names.

@Dave Foster @Dylan Johnson Hypothetically, they would send Form 8828-B for withholding certificate on the same day the property is under contract (with closing 90 days after acceptance to give IRS enough time to process). Do they need to include the "notice that seller intends to complete a 1031 exchange" with Form 8828-B?

When does the IRS need the replacement property contract? Ideally we need the IRS to approve exemption first in order for us to include the "withholding" amount to the replacement property offer price?

Hello, I have foreign clients who own investment real estate in the U.S. They are looking to sell and would be subject to FIRPTA tax. Is there a way to avoid paying this? and is there a way to avoid the withholding requirement?

Keep in mind:

#1) they are doing a 1031 exchange (selling 2 relinquished, and purchasing 1 replacement)

#2) sale price is over $300,000.

#3) it is almost impossible for them to do a simultaneous exchange on the same day.

Thanks, Emma. I'll double-check with a tax professional to confirm.

One more thing I overlooked... Currently, they file taxes separately, but they plan to file jointly after establishing the Holding Company. This may be an issue.

Do they need to structure their Holding Company so it's owned by two disregarded LLCs, with each of them being the sole member? And should they still file taxes separately or can they file jointly? (Property is in Illinois)

Hey All! My friend is interested in doing a 1031 exchange with an investment property. Both him and his wife currently own the property in their personal names and plan to maintain that ownership structure when selling the relinquished property and purchasing the replacement property. This avoids any complications with the 1031 exchange.

However, after the exchange, they want to transfer from personal name to an LLC under their Holding Company to protect their assets. It appears the IRS may withhold tax deferral if ownership changes immediately after the exchange. I noticed some 1031 intermediaries have stated there is no legal requirement for "time limit" after the exchange is complete to quit claim to an LLC, but some recommend holding it in the same title for "some time."

Does the IRS ultimately look at the investors' intent when they quitclaim right away?  In this scenario, both are transferring from personal names to their Holding Company for asset protection, indicating good intent. Since they both will own the Holding Company, it will technically remain the same "taxpayers."

Any advice or concerns on how to approach this?