All Forum Posts by: Lauren Speidel

@Johan Rienstra I'm not familiar with any other country having a similar 1031 Exchange tax structure vehicle. It would be best to speak with a tax advisor in your area who can better advise you.

@Bilal A. If there is an extension, it will most likely be posted on this IRS website. https://www.irs.gov/newsroom/t...

@Account Closed Like the comment above, an ADU compliments your current property so it may not be considered an ADU if you separate. If you buy the replacement property and a portion of the property is used as a primary then it would be advised to speak with your tax advisor to determine at the time of sale, which amount will be able to obtain the primary residence exclusion and which portion would be subject to typical investment property tax liability. If you are able to qualify for the primary residence exclusion then a gain of 500k (if married) and 250K (if single) would be excluded from your income (only for the primary portion gain). You would have to live in the primary portion for 24 out of 60 months and not have used the exclusion in the past two years. We have clients combine a primary residence and rental property quite often, so it certainly can be done with proper planning.

@John Warren Thanks for the mention!

@Account Closed You could do a transaction like you described except you can't use your Exchange funds to build that ADU that you will use a primary residence. Exchange funds must be used for investment purposes and not for personal use. So you actually could do a regular 1031 Exchange and you'd have to use personal funds/financing to build the portion that you'd use for personal use. Let me know if you'd like to chat structure in more detail.

@Isabella Rose Your 45 days begins the day after the relinquished property is sold but prior to closing you must have established a Qualified Intermediary account. The QI will help advise and structure the 1031, create the taxpayer's 1031 Exchange account, prepare the necessary 1031 Exchange documents, securely hold the proceeds from the relinquished property sale, keep track of your 45 calendar day/180 calendar day deadlines (and also provide you with an identification form), and coordinate the 1031 with the closing agent. Keep in mind, a Qualified Intermediary can be anyone who is not a "disqualified agent". Like others stated above, your CPA or real estate attorney can't as your QI if they have provided legal or tax advice to you over the past two years.

Also, be aware that anyone can be a Qualified Intermediary. There is no government oversight in our industry and because of that there have been instances where QIs have not safeguarded their client's funds appropriately and/or they don't have the expertise and experience to adequately assist a client engaging in a 1031. Confirm the QI you chose is insured, bonded, holds client's funds in a Qualified Trust or Qualified Escrow account, has reputable reviews from others, have been in the business a number of years, and has the expertise and experience to assist you and your clients.

@Michael P. Delaney I would argue that your CPA is incorrect. To have a fully tax deferred exchange you need to replace all of your equity and all of your "debt value" as well as trade equal or up in value based on the net sales price of the property you sold. When I say "debt value" that means that you don't necessarily need to replace the mortgage you paid off with the same mortgage amount on the new property. You could offset that amount with cash. For example, let's say the mortgage was $100,000 and instead of taking out a mortgage for $100,000 you decided to take a mortgage for $50,000 and bring $50,000 of cash to closing, that would satisfy the debt requirement. Let me know if you have further questions.

@Ana Adler and @Jeff Lutz I would not choose a QI based on location along. Qualified Intermediaries have no government oversight which means anyone can be a QI. They don't have to meet any criteria. I would confirm that they are insured and bonded as well as hold client funds in a Qualified Trust or Qualified Escrow account. Less than 1% of QIs have any government oversight. Some have taken steps to be audited, licensed and regulated providing clients with even more protection.

If location is at the top of your list, I would reach out to local title companies or local banks to see if they offer these services.

@Chris Thompson The biggest benefit of the 1031 Exchange is the estate planning! Which means if you keep exchanging into larger and more profitable properties you should have (hopefully) a steady stream of income. Eventually when you pass away your beneficiaries receive a step up in basis which means they aren't responsible for the tax liability that you've deferred over your lifetime.

And I agree with @Dave Foster, if it doesn't financially make sense for you to do a 1031, you don't want to continue to own real estate or you're not finding good deals out there, definitely reasons to not engage in an Exchange. 

@John Warren Thanks so much for the tag! @Michael WIlliams The IRS does not state that you must hold a property for any specific amount of time but most 1031 Exchange experts usually recommend holding the relinquished property for at least 12-24 months to prove your intent. Intent is critical with a 1031 Exchange. You must be able to prove that you had the intent to hold both the relinquished property and replacement property for investment purposes (being rental income, appreciation or use in a trade or business). Actually doing it will prove your intent under audit. With this being said, we certainly have had clients hold their properties for much shorter periods of time. Your situation is falling into a grey area and you could possibly argue that there was a good financial reason to sell and buy these new properties. It is always recommended that you discuss your strategy with your tax advisor as they will be the one reporting your taxes and giving their "blessing" on the 1031. 

@John Warren Thanks for the mention. @Brian Knotts The lease must be long term (30+ years) to qualify but also must be purchased with the intent to hold, as any other 1031 Exchange property. If purchasing an existing lease it's the remaining term that needs to qualify (must have 30 years or more left), not the original lease.