All Forum Posts by: Whitney Nash

Hello Jamie,

Unfortunately, that would not comply with the 1031 exchange rules. When buying replacement property with 1031 funds it must be ‘new to you'. So, even though your LLC would buy it, you're the members of the LLC and it's connected to you personally.

Hello @Phillip Wright

Yes, you can do a 1031 exchange with the portion of the sale that is attributable to the 'real property'. You will want to look at the valuation of the business entity itself vs. the value of the buildings, land, and any other 'real property' and work with your CPA to make sure that the amount that goes into the exchange is correct. You can then use the 1031 funds to buy the 13 door property and a second investment property if you want/need. 

Hello @Nicole Wu

Based on what you wrote, a 1031 exchange is feasible for your situation, but I would want to confirm after learning more details. As @Bill B. wrote, I would also recommend that you look for replacement property while selling your townhome. You can even be under contract for the replacement property before you close on what you're selling. Just make sure that the purchase closing date is after selling closing date so that you don't have to do a more expensive and complicated reverse exchange. I typically recommend at least a week cushion just in case there is a delay of some sort.

Hello, @Christopher Brown

There are three numbers to keep in mind for full tax deferral. You’ll want to buy replacement property worth equal to or greater than $525k (less closing costs), acquire equal to or greater debt (loan or personal cash) on the replacement property than what was  paid off with the sale, and you will want to put all of the sales proceeds into the exchange account and use all of them towards the purchase. Any difference in the three numbers is taxable. If you want to take cash out at closing, you can it’s just taxable, and not considered a return of basis. 

Hello, @Christopher Brown

Yes, the type of property that you are interested in buying as replacement property does qualify as like-kind.

I’m part of a national commercial realty group and would be happy to put the feelers out there to see if something is available that you might be interested in.

Also, one thing that you want to keep in mind are the two deadlines… from the closing date of your relinquished property you have 45 days to identify the replacement property and 180 days (from the date of sale) to buy it, so it’s good that you’re already looking now. 

Hello @Jacob Daniels

Since your intention was to rent it out and you have proof that you have been trying to rent it, you should be able to do a 1031 exchange. You would still want to make sure that it makes sense to do so regarding your adjusted basis, taxable gain, etc., though. Be sure to save the documentation for everything that shows (substantiates) your intent and efforts to rent it just in case you do a 1031 and are ever audited. 

@Denver McClure and @Account Closed Thank you for the recommendations; I really appreciate them! 

@Sanju Walia I would be happy to discuss your situation and goals with you to ensure that you understand the rules and that a 1031 makes sense for you. I'll send you a message in case you would like to connect.

Hello @Carey Branam

@Jeff Nash is correct, replacement property for a 1031 exchange cannot be property that you already own, nor used to make repairs on property that you own because it is not 'new to you' and the repairs are not considered like-kind real property. 

Also, you mentioned not being sure who could help with 1031 questions... a Qualified Intermediary for 1031 exchanges, like myself, would be your best resource. I'll message you and we can connect incase you have future questions.

Hello @Vince Light

I understand that you want to retain some proceeds and expect to pay taxes on it. To help explain things, though, let me start with how to have full tax deferral and work my way to that. 

When doing an exchange, for tax deferral there are three numbers to keep in mind. You also what to think 'exchange up'.

1- Buy replacement property that is equal or greater in value (less allowable closing costs) than what you sold. This can be done by buying more than one property, if needed.

2- Acquire debt on the replacement property(ies) in an amount that is equal or greater than what will be paid off of the relinquished property. This can be accomplished with a loan and/or bringing cash to the table. 

3- Put all of the proceeds from the sale of the relinquished property into the exchange account and then use it towards the purchase of the replacement property(ies). 

Any difference to any of these numbers is taxable boot. 

So, if you sell for $750k and your closing costs are an estimated $50k, then you need to buy something worth $700k or more (again this can be across more than one property.) If your debt pay off is $315k, then you need to get a loan or bring cash to the table that is $315k or more. And, if after the debt and closing costs are paid you have $385k in proceeds, then you would need to use all of them towards the replacement property(ies) purchase. Again, any difference in any of those numbers is taxable, so you'll want to make sure that doing an exchange makes sense. If you're only reinvesting $70k and buying one $350k property, then it doesn't. If you're going to buy more properties and put more of the proceeds down, then it might. If you reach the purchase and debt numbers but only want to reinvest say $300k of your proceeds and retain $85k for a personal cushion, then I think it makes sense.

Hello @Adam Ward

You'll want to think of this as if you are buying a $500k property since you are looking to by 50% of the $1m property as a TIC. Using your numbers, the sales prices, less allowable closing costs, of all your SFRs combined should be less than $500 if you want full tax deferral so that you are 'exchanging up'. You will also want to use all proceeds from all the sales. Any difference would be taxable. Your proceeds would go towards your 50% portion. The other person would be responsible for their down payment. Since you don't have any debt on them, you don't have to worry about debt offset. Acquiring dept on at replacement property is OK even if you didn't have debt on what was sold. I would assume that the mortgage would be 50/50 as well, or you'll get a loan for 375k and they get one for $375k, for the TIC, so that wouldn't cause an issue.

This is hard to answer without your actual numbers, but if they are indicative and proportionate to your situation, you should be fine and have full tax deferral.