We recommend that you get a copy of our free booklets about 1031 exchanges and other tax saving tips including sales of primary residences by clicking the following link. Free Booklet
Below is a list of the questions that people ask. If you have a question which is not on the list you can call our office and we will be glad to answer it for you at no charge.
(Q)Do I need an Accomodator/Qualified Intermediary?
Yes. IRC Section 1031 states that an independent non related third party has to be in charge of the proceeds and that an assignment of the rights to the property (purchase and sale agreement) has to occur to a non related third party.
(Q)If I am already in purchase and sale, is it too late to complete an exchange?
No. We can still complete the exchange but we have to
act fast.
(Q)Can I keep some of the sales proceeds?
Yes. Any proceeds that you keep however are taxable to you as either capital gains or recapture of depreciation. We have other strategies for you if you do need some money.
(Q)What happens to the proceeds of the sale while I am looking for a replacement property?
All your funds are safeguarded and kept in a separate
fully insured escrow
account located at Winchester Cooperative Bank.
(Q)Can I use a family member to be my Accomodator/Qualified Intermediary?
No. The law clearly states that it must be an independent non related individual. You,
the taxpayer (seller), your agent or agents or anyone who, within a two-year period of the exchange transaction,
who has acted as your real estate agent/broker, attorney,
accountant/CPA or investment/financial advisor/broker in any capacity cannot be your qualified Intermediary.
(Q)What do I need to know about doing an exchange?
Making an exchange part of your sale doesn't add much to the process. You need to attach some additional documents to the purchase and sale agreements and some language to the offer to purchase form. You do need to know about the date requirements. You have a limited number of days to identify and purchase a replacement property. We will explain all this when we meet and will generate a date calendar for your on the day you sell your property.
(Q)Do I have to purchase what I identify?
Yes, but not every property that you identified. If you
do not purchase any of the properties identified within
180 days of selling your property, then the exchange is
disallowed.
(Q)How do I identify property?
We will give you a form that you will either mail, fax or hand deliver to us within 45 days of the sale of your property.
(Q)Can I take back financing on the property I am selling?
Yes, but it can become taxable to you. We strongly advise you to speak to your accountant or tax advisor.
(Q)Can I build on property I already own?
No. The exchange proceeds can only be used to acquire property from someone other than yourself.
(Q)Can I purchase a property from a relative?
Yes, but there are certain rules that apply if you sell it before a period of time goes by.
(Q)What happens if I cannot find a replacement property?
If you cannot or do not identify any replacement properties before the expiration of the 45 days rule, your exchange has failed and we will give you your proceeds from the sale. You now must however pay taxes on the gain from the sale of the property.
(Q)Can I purchase a property to use personally?
If the property will be used by you and not rented out for a certain period of time, you will have changed the use of the property from business to personal and the exchange will be disallowed.
(Q)Can I purchase the property in another name?
Change of ownership of title after the property has been sold, in almost all circumstances will disallow the exchange. If you know ahead of time that you want to do this, change title before the property is sold.
(Q)Can I exchange stock or bonds that have a profit?
Exchanges exist for other property than real estate. Stocks, bonds, options instruments of indebtedness and interests in partnerships, are not allowed to be exchanged.
(Q)When can I start looking for a replacement property?
You do not have to wait until the sale of your property to start looking, you may start anytime prior to the sale.
(Q)Can I purchase an interest in a property?
Yes. You can purchase what is known as a Tenant in Common interest (TIC). These are usually larger properties with professional management in place and
have a solid return on investment. You cannot however purchase an interest in a real estate investment trust (REIT).
(Q)Can you give me tax advice?
As a Qualified Intermediary, we must remain independent. We can only discuss areas related to your exchange. If we render more advice than that, the exchange could be
disallowed because we would not be considered an
independent third party.
(Q)Can I exchange a property that was my replacement property from a pervious exchange?
Yes, you may continue to postpone the recognition of
gain on any property regardless if it was acquired from
an earlier exchange. The last property acquired will pass to your heirs at a stepped up basis equal to the current fair market value and your heirs may sell the property for cash at the new basis with out recognition of
any of the previous deferred gains.
(Q)May I purchase foreign property?
Allowed replacement property is limited to only property located within the fifty United States and the U.S. Virgin Islands.
(Q)May I exchange one property for multiple properties?
Yes. One or more relinquished properties, that is property you will sell, may be exchanged for one or more replacement properties, that is property you purchase, subject to certain rules that
have time limitations on the identification period of replacement property. The three rules are "Three Property Rule", the "200 Percent Role" and the "95 Percent Rule", it is important that as an exchangor you understand these rules and how each one may effect your exchange.
(Q)May I exchange my second or vacation home?
To qualify for a tax-deferred exchange, the property must have been held for investment, or the production of income. Typically your second home will not qualify for this treatment. Have you rented the property out? How have you treated the property on previous year's tax returns? There are specific strategies for converting the use of a property into one appropriate for exchange (Conversion). Again this is where you need the assistance of an experienced Qualified Intermediary to properly
assist you.
(Q)Can I exchange my vacant land for a condo?
If both are held for investment or for the production of income, you may. You may even, exchange a parking lot for an apartment building. The category of the property will determine if it is qualifying"like-kind" in the eyes of the IRS, and suitable for exchange. The rules are simple all real estate qualifies except property held for resale and personal property.
(Q)Can I deed the property to another before the exchange takes place?
Change of ownership cannot occur during the exchange. It may only occur before the exchange begins and after the exchange has been completed with a holding period of
approximately one year. If you do change ownership before the exchange begins you should speak to your tax
or legal advisor.