TEE-Shots Newsletter

Thu
10
Apr

Loans to a Trust...

"The old property that I sold was in the name of my revocable living trust. The lender on my new property won't make a loan to the trust. Is this a problem?"

Mon
31
Mar

The intermediary Bond...

"The intermediary I use is an attorney/CPA/title company. They tell me that the bond from their other business covers their intermediary work. Is this correct?"

It might, but probably not. Ask for a copy of their bond; they should be more than happy to give it to you. Once you get the copy, review what it covers and look for wording about a 1031 exchange, or qualified intermediary, or exchange services, etc.

Sat
15
Mar

The 45-Day deadline...

"I have 45 days to identify replacement property for my exchange. What if I change my identification after the 45 days?"

If you change your identification after the 45th day, you’re in big trouble. If you get caught, your exchange will be disallowed. You’ll also be subject to penalties, which will probably run 100% of the tax. You’ll owe interest on both the tax and the penalties, and you could even end up in jail (yes, people have gone to jail for this).

--The Experts

Thu
27
Feb

Using funds on pre-closing items...

"Can I use exchange funds that are being held by my intermediary for items like earnest money and appraisals prior to the closing of my new property?”

Yes and no. The intermediary may only advance funds from your exchange account (the money being held from your sale) for items that are refunded if the closing never occurred. Earnest money is the most common example of this.

Thu
13
Feb

IRS Form 8824...

“How do I report my 1031 exchange to the IRS?”

IRS Form 8824: This is the official 2-page form that you submit with your federal tax return to report the details of your 1031 exchange. You may be required to submit additional tax forms and calculations that relate to your exchange, but 8824 is the only form used for reporting the exchange itself.

Mon
03
Feb

REIT as 1031 replacement property...

“Can I buy REIT shares as my replacement property?”

I often hear about qualified intermediaries saying you can, but what does the IRS say?

Absolutely not! The IRS has ruled that REIT shares do not qualify as replacement property in a 1031 exchange. A REIT, or Real Estate Investment Trust, is like a mutual fund that owns real estate. It is a security, however, not real estate.

--The Experts

Tue
21
Jan

Selling 2, buying 1...

Can I sell two properties, and then only buy one new property to complete my 1031 exchange?

Yes, you can. In fact, this is a good strategy for reducing your management hassles by consolidating your investments. This may also make sense if you want to sell a few smaller properties in order to finance one more expensive property.

Fri
27
Dec

Transferring shares to a partnership...

Can I buy a share of the new property then immediately transfer my share?

I know I cannot sell the old property in my name, and then turn around and buy a share of a partnership. But, can I buy a share of the new property in my name, and then immediately transfer my share of the land to the partnership?

Fri
27
Dec

The name on the deed...

What if the lender for the new property is insisting that the loan include my spouse’s name, and that my spouse must also be on the deed? Is this a problem?

The taxpayer (name that appears on the deed) for the sale of the old property must be the same taxpayer on the deed for the new property.

For example: If you sell as John C. Investor, you must buy as John C. Investor.

Fri
27
Dec

The Definition of "Investment"

One of the basic requirements of a 1031 exchange is that you have to hold both the old property and the new property for investment. So what is the definition of “investment”?

Investment property is a very broad category. In fact, it generally includes any real property that is not your personal residence.

Examples of investment property include rental houses and condominiums, bare land, commercial office or warehouse space, apartments and farm land.

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