Tax Deferred Exchanges IRC 1031

The nation's oldest and largest exchange accomodator

FREQUENTLY ASKED QUESTIONS
Regarding 1031 Tax Deferred Exchanges

~ Download 1031 Exchange Brochure ~
~ Download Identification of Purchase Property Form ~

Q 1. Can I exchange my investment property and defer taxes by investing the money into other Property I already own?

A 1. No.

Q 2. Can I exchange my investment rental property for non-income producing property?

A 2. Yes.

Q 3. Can I exchange my residential rental for Commercial Property?

A 3. Yes.

Q 4. After I complete my exchange, how long must I hold the new property before selling?

A 4. No Holding period. However, be aware of Dealer property status.

Q 5. How long must I wait to make my exchange property my personal residence?

A 5. If your intentions at the time of the exchange were to occupy this property as personal residence, IRS will disallow the exchange. Intent is the key.

Q 6. Is there an extension of time on the 45 day identification period or the 180 day time frame?

A 6. No.

Q 7. Can I receive the interest on funds held by the Accommodator, without jeopardizing my exchange?

A 7. Yes. Taxation Budget #95 May 15, 1990.

Q 8. Can I defer taxes by using the proceeds from my exchange, to build or develop other property?

A 8. Yes, however, there are special circumstances. 1031(k)-1(e)(1)

Q 9. Can I defer taxes if I acquire my new property before I sell my old property?

A 9. Yes, this is a Reverse Exchange. Ask about fees and special considerations. Rev. Proc 2000-37

Q 10. Can I take cash from my exchange?

A 10. Yes, but it must come out of the sale escrow transaction. All remaining funds must be held by the Accommodator. The amount must be stated in our agreement signed in Escrow 1031(k-1)(g)4(vii).

Q 11. Can I exchange a property in California for a property in another state?

A 11. Yes. You can exchange anywhere in the United States, and Pacific Financial Exchange Corp. can accommodate your exchange in any state.

Q 12. Can I use my net proceeds to pay non-recurring closing costs on the purchase of my property?

A 12. Yes.

Q 13. Can I exchange my investment property for a Partnership interest in property?

A 13. No. Section 1031 (a)-1 July 18, 1984.

Q 14. Can I carry-back a Note on my sale property?

A 14. Yes. However, the Note will be taxable.

Q 15. Can I exchange my investment property for a Business?

A 15. No.

Q 16. Can I exchange my business for another business?

A 16. Yes, but certain intangible items are not exchangeable.

Q 17. How long must I wait to refinance property acquired through an exchange?

A 17. No waiting period.

Q 18. Can I exchange one property for two or more properties?

A 18. Yes.

Q 19. Can I pull out my original cash investment from the exchange property and avoid paying taxes on this cash?

A 19. No - The monies have been co-mingled.

Q 20. Can I exchange a partnership interest for a Tenant-in-Common interest and thereby avoid capital gains?

A 20. No - Rev Proc. 2002-22
Entity transfer not considered "Like-Kind".

Q 21. Is it possible to exchange my property for property owned by a relative?

A 21. Related party transactions are being scrutinized by IRS under SEC. 1031 (P), TM 9748006 - 08/25/97 IRS is concerned with abuse of basis. Until we receive further information on related party transfers we are advising against them. IRS appears to be determined to audit all exchanges between related parties.

Q 22. Can I exchange my property for a "Tenant-in-Common" ownership in a "REIT"?

A 22. No - IRS will consider a "REIT" as a publicly traded partnership. Rev. Rul. 2002-22, June 19, 2002. However, you can exchange into a Tenant-in-Common ownership with an undivided interest.

Q 23. If I use my own funds as deposit into the purchase Escrow, can I then have escrow reimburse me?

A 23. No. Your reimbursement must come back to you from the Accommodator and only after you have received clear title to the purchase property. REG 1031 (K)-1(g)(3)(v)

Q 24. Can I refinance my property to be exchanged, prior to close of escrow tax free?

A 24. No. If you refinance after your property has been listed for sale, cash out will be considered to be Boot. Taxable as ordinary income. Long Vs. Comm. 80TC, 491.

Q 25. Can I subdivide my acreage and do an exchange for other property?

A 25. No. Subdividing property will re-classify the land as “Dealer Property” which is not
like-kind. Margolis Vs. Comm. 337F2d 1001.

Q 26. Can I exchange my second residence for another piece of Investment Property?

A 26. There are significant problems with this type of transaction, as of January 1, 2005

Q 27. Can I exchange my personal residence for investment property?

A 27. No. Section 121, Personal Residential Code Section is a mandatory Section in that if you have lived in the property for at least 2 out of the last 5 years, then the subject property is personal residence and can not be exchanged under Section 1031.

Q 28. Who must the up-leg property be identified to?

A 28. The Accommodator or Intermediary.

Q. 29. Can I use Section 1031 to Exchange my Personal Residence that I lived in less than 24 months?

A. 29. No. Personal Residence is covered by IRS Section 121, and cannot Exchanged
for any other property.