Discussion:1031 Exchange Multiple Units Condo Conversion

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Discussion Forum Index --> Advanced Tax Questions --> 1031 Exchange Multiple Units Condo Conversion
Discussion Forum Index --> Tax Questions --> 1031 Exchange Multiple Units Condo Conversion

Davewright1010 (talk|edits) said:

4 February 2008
I have a client who is converting an apartment complex with 20 units into condominiums. After he sells each of these condos and finishes this project, can he shelter his capital gains via a 1031 exchange. For example, if his Cap Gain total for all 20 units is $1,000,00 can he purchase another real estate property for "at least" $1,000,000 to defer the capital gain on this project?

The issue being can a person defer cap gains on the sale of Multiple Units (i.e 20 units)and purchase one unit for a 1031 exchange.

RoyDaleOne (talk|edits) said:

4 February 2008
Excluded from non-recognition treatment are exchanges of:

(1) Stock in trade or other property held primarily for sale;

You have to overcome the exclusion first, maybe you can.

Second it is the "selling price" not the gain that must be reinvested. Third any money touched by the seller from the sale is taxed upto the gain. Fourth you have six months from date of sale to reinvest. Unlikely to sell all twenty condos within six months, possibly but needs careful planning.

The sale of twenty apartment units, individually, could be exchanged under 1031 for a single asset.

This is a some what complex area of the Code and you need to study it very carefully.

Kevinh5 (talk|edits) said:

4 February 2008
Agreed 100% - by conversion to condos he may have made these his stock-in-trade/inventory.

RoyDaleOne (talk|edits) said:

4 February 2008
On the other hand I could buy twenty condos and rent them, and avoid,

the stock in trade question.

If, I were the IRS I would go after the stock in trade, just my opinion.

Nice problem.

Davewright1010 (talk|edits) said:

4 February 2008
I'm not sure what you mean by stock-in-trade/inventory...

So it it of your opinion(s) - Kevin/Roy that the sale of twenty apartment units, individually, could be exchanged under 1031 for a single asset.

Would all these individual units have to be sold within 6 months ?

Kevinh5 (talk|edits) said:

4 February 2008
we're saying that it might NOT qualify for 1031 treatment. See ยง1221

also see the House Ways and Means Committee Report 98-432, part 2 on H.R. 4170, 03/05/84, page 1703

then look at Rev Rul 80-216

RoyDaleOne (talk|edits) said:

4 February 2008
See Sec 1031 replacement property requirements, available on this web site, as the time requirements. And other requirements.

Taxtips (talk|edits) said:

5 February 2008
Property held primarily for sale (whether or not in the ordinary course of business) does not qualify for 1031 treatment.

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