All Forum Posts by: Lauren Speidel

Hi Jeff,

Regarding the cash out refinance after an Exchange, you are going to get different opinions based on who you ask. I have sat in on other 1031 Exchange presentations where a Qualified Intermediary has said you can refinance as quickly as it "takes to make a cup of coffee" after the purchase. I would probably lean more toward a time frame of 60-90 days to season the purchase. The longer you wait, the better, even though there is no direct language in §1031 about doing a cash out refinance after the purchase. I'd chat with your CPA to see what their opinion is.

Hope this helps!

Hi Marcus,

A Qualified Intermediary cannot provide tax or legal advice otherwise they may be considered an agent of the taxpayer. An agent of the taxpayer cannot act as a Qualified Intermediary and will disqualify the 1031 Exchange. We always leave those extensions and dates up to a client's CPA. It is up to the CPA to determine if the taxpayer is an "Affected Taxpayer" and if so which date/dates are being extended. I haven't had a CPA push back on this before. 

I hope this helps.

Looking forward to this event, John. Thanks for the invitation. 

@Marina Wong Seller carry back notes can be a great option for a buyer in this environment. For a seller looking to do a 1031, it can cause some headaches, but we are seeing them more and more. One option is that you have the note drafted to you and at closing you bring the value of the note to the closing so that the QI (Qualified Intermediary) holds all of your Exchange proceeds. As the buyer makes payments to you, the principal is not taxed but the interest is. Another option is that you only do an Exchange with the down payment and treat the seller carry back note as an installment sale. I would check with your tax advisor to see if this financially makes sense. We also have seen some Exchangers, have the note drafted to the QI and the seller somehow funds the value of the note prior to purchasing the replacement property, you also can sell the note to a third party to make up for the note amount, but I would expect it to be at a significant discount or the seller of your replacement takes the note as part payment for their property. While this last option is feasible, I've never seen it done. I hope this helps.

@Gabi Ashenden As others have stated above, domestic property is like-kind to other domestic property. You can do a foreign property exchange, but you would have to buy foreign property. It would only defer your US tax liability. 

@Bette Hochberger I usually tell my clients to use their escrow period to narrow down a location and even possibly a property. Being prepared is key. Unfortunately, I do have clients that come to me at the last minute to set up their exchange. Let's say they had a 30- or 45-day escrow period before closing, they could have been using that time to help them narrow down their replacement(s). You can go put in an offer, sign a contract and put down earnest money even before the relinquished property closes. If the client is trying to execute a forward exchange, they will just want to make sure their current property can close prior to the purchase of the replacement. 

As others have stated, if you do have a client nearing their 45th day and they haven't found a replacement and still want to defer the tax they could look at a passive investment like a TIC or DST.

@Stevee Danielle Yes, you would as long as you have lived in the property 24 out of the past 60 months and have not used the exclusion in the past two years. Some tax advisors may recommend renting the property for 24 months to really prove to the IRS that you have changed your intent from primary use to investment use which is a critical requirement in a 1031. Some tax advisors may be comfortable with 12 months, I would check with yours to get their opinion. 

@Luke Tetreault, Like @Scott E. stated, if the property has only been your primary, it would not qualify for a 1031. You may qualify for the primary residence exclusion which would exclude 250K gain if your single and 500K if you are married as long as you've lived in the property 24 out of the past 60 months and haven't used this same exclusion in the past two years. 

A 1031 is only used for investment purposes. You would have to be selling an investment property and buying and investment property for the Exchange to qualify. Also, flips do not qualify in a 1031 because you must have the intent to hold and with a flip, you have the intent to sell which would disqualify the 1031. 

@Nicholas Creahan Have you been filing a joint tax return with your spouse? If so, then she may already be considered an owner of the property. So, when you purchase your replacement property you can purchase in your name or both of your names since CA is a community property state. I would definitely consult with your tax advisor to make sure that you didn't have an agreement prior to marriage, or you chose to report the property specifically as your asset, either one of those could change this situation.

With that being said, there is currently no limit to how much you can defer in a 1031 Exchange. You could defer all of your tax liability with a 1031. With a primary residence, a married couple who has lived in the property 24 out of the past 60 months can exclude 500k of gain from their income. 

@Andrew Pierson She has clearly shown her intent through the years. As long as she doesn't start using the property personally over the winter months, she should be fine. Sounds like she has a documented investment property, and it shouldn't cause an issue with the 1031.