All Forum Posts by: Michael Skoczylas

In order to complete a 1031 Exchange which is not simultaneous (99.9% of them) you will need a Qualified Intermediary. The Qualified Intermediary (and there are many) cannot be anyone that has provided services to you in the past. I would advise having an attorney of your own to assist with the closing, and possibly to review your agreements with your QI; but technically you do not need one. Happy to help, and talk to you about the process. It is actually VERY SIMPLE.  

As @Dave Foster said, the dangers with the 3rd party (and yes- divorce, meth, and bankruptcy are real dangers) are real, and again it MUST be a real actual 3rd party, not some hoax. You do have the option of doing a non-safe harbor exchange- also called a Bartell Exchange, which has been blessed by the Tax Court, but the IRS has sent a letter saying they do not agree with it. This obviously brings in some risk, but clients still choose to do non-safe harbor exchanges if the situation really calls for it. The Leasehold Improvement exchange is still an option, but the timing has to be right, and the paperwork needs to be real ( I say this because often investors call it Thing A just to appease a lawyer, but act as if it is Thing B).  But to go through this, it must really be worth it. 

If the Third party is an actual 3rd party, and not a related party this may work. There may be other strategies you can deploy as well depending on the situation such as a purchase by a related party, then a leasehold improvement exchange which can extend the timeline. The situation may warrant either approach, particularly if you do not have a third party you trust. Happy to answer any questions if you want to give me more specifics.  

@Noah Weitzman In that situation I do not see how you would have any tax. This is assuming that your distributions on the refinance are not in excess of basis. I think the refinance and using the proceeds for a new property is an excellent idea, and should be tax-free. 

@Tom Beck your hypothetical probably ends up with the worst tax situation of any of the others. When your father 1031's into two new properties- the basis in the Relinquished Property was $1 million- that basis is split between the two new properties based on the FMV - it happens to be in your example- $500k each. If he sold you the property for $1, and the IRS got wind of it, they would either consider it a gift to you of $999,999, and likely ding your father for failure to file (at best, and at worst an attempt at fraudulent tax evasion). Depending on when that IRS audit occurs, you may also not be able to take a carryover basis - and your basis would still be $1- that would be the worst of both worlds for you. As others have said above, the optimal way is for your father to gift you the property, and you get the full $500k basis in the property, it SHOULD NOT ruin his 1031.

@Remington Lyman I love the plan- keep moving up, and using 1031 and cost segregation to decrease your taxes and increase your cash flow and allow you to purchase larger and larger properties. Great Work!

@James Marin- @Russ B. nailed it. A 1031 exchange allows you to trade up in value of properties and defer (sometimes permanently) the taxes on that sale. The theory is that you have never exited your investment and therefore there is no recognition event. Its a strategy used by many real estate investors. Cost Segregation (call @Yonah Weiss) is also a great way to lower your taxes (give you more cash to use today) while you are growing your business. 

1031 may be a good option here. If your girlfriends aunt has significant gain and would like to reinvest the cash from the duplex into new real estate then a 1031 would be a great option. If she wants her cash, then there is no perfectly legal way to avoid these taxes. If she lived in part of the duplex, she may be able to use a Sec. 121 exclusion on some of the property. It all depends on what she wants and what the facts were until this point in time. 

Yes. The IRS is very liberal on like-kind when it comes to Real Property. The only thing to watch out for @Natalie Kolodij is that foreign real property is not like-kind to US real property. However, Foreign real property is like-kind to other foreign real property. So an apartment in Germany is like-kind to a strip mall in Paris, but not to an apartment in Miami, FL.