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What happens to your 1031 exchange if the lender requires that you take title to your New Property in its own separate, single purpose entity -- like an LLC? Will it toast your exchange? Is there a way to salvage the exchange? What are your options?

This is a common problem, especially with commercial properties. From the lenders standpoint, a "single purpose," or "bankruptcy remote" entity makes sense. What the lender is seeking to prevent is another of your properties that might be having problems from dragging down this one good property and putting their loan in jeopardy.

Section 1031 allows you to roll the gain from the sale of your Old Property to the purchase of your New Property. To do this, you have to jump through certain hoops. We've talked in previous articles about how your property has to be held for investment and that it can not be held for resale.

We've also talked about the requirement to identify potential replacement properties for your exchange and how you have to complete a list of these potential properties within 45 days. We talked about the requirement that whatever you purchase must be on your 45 day list. And then last month we talked about how your money must be held by an independent third party called a Qualified Intermediary (QI) and how you must make sure that the intermediary holds your money in an account separate from other exchanges.

Section 1031 of the Internal Revenue Code allows you to roll the gain from the sale of your Old Property to the purchase of your New Property -- and not pay any capital gains taxes! To do this, you have to jump through certain hoops.

We've talked in Part 1 about how your property has to be held for investment or business use, and that it can not be held for resale (like a developer or fix-&-flips). We talked in Part 2 about your requirement to identify and list potential replacement properties for your exchange within 45 days of the closing of your sale of the Old Property. In Part 3 we talked about the requirement that you purchase your replacement property within 180 days of the sale of your Old Property, and that you must buy at least one of the properties listed on your 45 Day List.

Section 1031 allows you to roll the gain -- and pay no capital gains tax -- from the sale of your Old Property into the purchase of your New Property. To do this, you have to jump through some hoops.

Our second Ñ1031 requirement is that you must formally identify the property that you might want to purchase. Simply stated, from the day you close the sale of your Old Property you have 45 days to file a list of properties you want to buy with your QI (the person or company you designate to handle your exchange).
You can identify up to three properties on your list without limitation. For example, if you sold your Old Property for $100,000, you could list three potential replacement properties for $10 Million each (a total of $30 Million). So long as you identify three or less, there are simply no limitations.