Discussion:1031 Exchange - Seller buys back original property
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Discussion Forum Index --> Tax Questions --> 1031 Exchange - Seller buys back original property
| 3 April 2008 | |
| I am working on a return where the a seller sold a piece of property (A) via 1031 and it was perfected in Q1 2006. In Q3 2007, the buyer of (A) get into a situation and the property was bought back by the original seller. The parties are not related and there was not anticipation of such events when the property originally sold.
Question: Does the original seller have an 1031 issues to address? Note: They had rolled the gain from the original sale into a property which they still own. | |
| 4 April 2008 | |
| Where can I look for guidance? I looked through the codes and the forms but have not found anything that talks about buybacks. | |
| 4 April 2008 | |
| I scanned my CCH Tax Research but did not dig into any in depth materials. With the exception of a related party transaction and conversion of 1031 property to personal use, I do not see any specific holding requirement after a 1031 exchange is made. If the 1031 qualifies and the court uses "intent" as its measure, I do not see any specific IRC stating repurchase is not allowed. | |
| 4 April 2008 | |
| Sounds like to separate transactions assuming the two items excepted above. | |
| 4 April 2008 | |
| When addressing a "Tax Free Exchange" at all costs avoid use of the incorrect language "sold" or "bought" - the whole idea is to "exchange" or to "relinquish" and to "replace". And the Broker is did not "sell" but "facilitated" the "exchange"; tainting an exchange triggers the recognition of Gain - and unwise and inadvertant action my do so.
The first Rule in any Profession is - First - Cause no harm. The answer, in my view, Yes the initial exchange mmust be timely reported and the 2nd transaction as well - and look for income from debt foregiveness in the 2nd transaction, as well. | |
RoyDaleOne (talk|edits) said: | 4 April 2008 |
| I think the repurchase is sufficiently remove in time from the original exchange to not taint the original sale. All the reference I found generally referred to a tax avoidance situation, and very close in time. | |
Southparkcpa (talk|edits) said: | 5 April 2008 |
| It sounds fine to me. The good faith and intent of the 1031 was not broken, the original seller (your client) has received no boot, still holds nothing but like kind property. I see NOTHING that puts you in jeopardy. I see faintly some of WPCPA's thought but did your client hold a mortgage? Not sure where debt foregiveness comes from? If so, possible problem.
I see no cash received or boot. What would trigger tax? If no boot, no tax problem. | |
