1031 Tax Exchange

1. You must substantiate that the property is held for investment. An exchange is not precluded because a taxpayer uses the property for personal enjoyment. However, I would recommend that you wait as long as possible before building a home on the replacement lot--at least one year. Two years is better. In addition, if you do build a home on the lot and make it your personal residence, you would have to own the lot for 5 years before selling the house in order to exclude a gain on the sale of the house because you acquired the lot in a 1031 exchange.

2. A two way exchange- you exchange your lot with the owner of the lot you want. Probably not practical.

3. Enter into an exchange agreement with a qualified intermediary (QI):

1. QI sells your lot and holds the funds.
2. You must identify in writing a replacement property within 45 days of the sale.
3. QI purchases (closes) on replacement property within 180 days of sale OR the due date of your tax return, which ever is earlier. (We would just extend the tax return!)

4. Reverse exchange: Enter into a Qualified Exchange Accommodation Agreement with an Accommodator

1. Accommodator purchases a property for you
2. You identify property you already own to be relinquished within 45 days of purchase (In your case, your lot)
3. Accommodator sells your lot within 180 days of the purchase of property.

The fees for reverse exchanges are more than those of the "forward exchange'. More issues involved. Before you buy or sell a property, you need to have a QI or accommodator involved so that the contracts can have the appropriate language, etc. In order to qualify as a 1031 exchange, it must be done "by the book."

For more information about doing a 1031 exchange, please Contact Us