Discussion:1031 exchange argument
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Discussion Forum Index --> Advanced Tax Questions --> 1031 exchange argument
Discussion Forum Index --> Tax Questions --> 1031 exchange argument
| 13 March 2008 | |
| Client had two plots of raw land zoned commercial residential and one lot with 12 unit apartment building with a package selling price of $1,065,000. Exchanged for raw land zoned commercial residential valued at $275,000. Client received difference in cash deposited in escrow with abstract company acting as qualified intermediary. Client's intent is to build new apartments on the land (he has already began this)
The abstract company told him this should be treated as 1031 like-kind since he is putting an apartment on the new land. I said no because at the time of the transaction it was developed property for undeveloped property, the values at the time of the exchange were nowhere near equal and the cash is considered boot and taxable. They also told him he could file for an extension to go beyond the 180 day rule since the replacement asset would be under construction. I've never handled a 1031 but my quick read of the rules leaves me uncomfortable with this treatment. The client kinda jumped the gun without consulting me because the deal appeard to be pretty sweet. Advise please. Thanks. | |
| March 13, 2008 | |
| I don’t know this person but I have his site bookmarked. I look at it every time I come across an exchange. | |
| March 13, 2008 | |
| There is NO extension of the 180 day rule; it's one area the IRS has shown zero flexibility.
Development cost up until the 180 day point do count. That intermediary better have E&O insurance. | |
| 13 March 2008 | |
| 1. Real Estate for real estate is ok. Developed to undeveloped is usually not an issue.
2. You may build on 1031 property and include the costs of construction in the 1031 exchange. 3. Any construction performed must be completed within the 180 day timeframe (no extensions) | |
| 13 March 2008 | |
| 4. Evidence of construction completed is a valid certificate of occupancy (no exceptions)
These rules sound hard but it is the IRS who makes them. | |
