What Paperwork Is Needed For A 1031 Exchange?

Do I need a lawyer for a 1031 exchange?

The IRS statute requires that you use a qualified intermediary (QI) to perform your 1031 exchange.

While it is possible for an attorney to provide this service, it doesn’t have to be an attorney and it can’t be an attorney you have utilized for any other matters..

What happens when you sell a 1031 property?

A 1031 exchange allows an investor to sell a real estate asset and purchase a “like-kind” asset without paying capital gains taxes on the sale — even if they made a massive profit. … That means the deferred capital gains tax on the property you sell will become due when the replacement property is sold.

Can you 1031 a primary residence?

A 1031 exchange generally only involves investment properties. Your primary residence isn’t typically eligible for a 1031 exchange. Even a second home that you live in some of the time is ineligible if you don’t treat it as an investment property for tax purposes.

What happens if my 1031 exchange fails?

In the case of a failed or partial 1031 Exchange transaction, you may be able to defer your capital gain income tax liability into the following income tax year rather than the current income tax year in which the relinquished property was sold (and closed).

How long do you have to hold a 1031 exchange property?

five yearsIf a property has been acquired through a 1031 Exchange and is later converted into a primary residence, it is necessary to hold the property for no less than five years or the sale will be fully taxable.

Do I have to use a qualified intermediary for a 1031 exchange?

In most circumstances, the use of a qualified intermediary is required to successfully complete an IRC Section 1031 tax-deferred exchange.

Can a title company be a qualified intermediary?

A title company, because it is not considered a prohibited agent, can act as a Qualified Intermediary in a 1031 exchange in conjunction with its ability to serve as an escrow officer throughout the transaction.

Can you rent a 1031 exchange property to a family member?

Absolutely, provided you strictly follow a few basic rules; First, the rent you charge has to be fair market value for that property, and second, your rental agreement must be in writing and you must enforce the terms of the agreement (most importantly the clause dealing with the late payment of rent), and third, your …

How long do I have to live in my rental property to avoid capital gains?

To claim the whole exclusion, you must have owned and lived in your home as your principal residence an aggregate of at least two of the five years before the sale (this is called the ownership and use test). You can claim the exclusion once every two years.

How do I avoid a 1031 exchange?

How to Avoid Boot in a 1031 ExchangeTrade up in real estate value with one or more replacement properties.Reinvest all of your 1031 exchange proceeds from the relinquished property into the replacement property.Maintain or increase the amount of debt on the replacement property.More items…

Do I need to do a 1031 exchange?

Yes, there are reasons not to do a 1031 exchange. … Or if someone is in the 10% or 12% ordinary income tax bracket, they would not need to do a 1031 exchange because, in that case, they will be taxed at 0% on capital gains. Finally, an investor might have another investment opportunity that’s not real estate-related.

Will 1031 exchange be eliminated?

The Tax Cuts and Jobs Act (TCJA) permanently eliminated tax-favored Section 1031 treatment for exchanges of personal property that are completed after 12/31/17. Thankfully, tax-favored Section 1031 treatment is still available for properly structured like-kind exchanges of real property.

What are the steps in a 1031 exchange?

The 10-Step Process to Perform a 1031 ExchangeDecide to sell and do a 1031 exchange. … List your property for sale. … Begin looking for replacement properties. … Find a qualified intermediary. … Negotiate and accept an offer. … Close on the sale of your relinquished property. … Identify up to three properties within 45 days. … Sign a contract on the first-choice property.More items…

How much does it cost to set up a 1031 exchange?

The short answer. The direct cost to you in a 1031 exchange typically comes in the form of a fee paid to your QI. QI fees vary, but most reports indicate that a typical deferred 1031 exchange costs between $600 and $1,200.

Can I live in my 1031 exchange property?

Property Held for Investment Use So your primary residence would generally not be accepted as qualified property in a like-kind exchange. The general rule is that you should not be living in any property that you wish to exchange with a 1031 transaction – though there are some exceptions to that rule.

Can an attorney be a qualified intermediary?

The IRS rules provide that an attorney cannot act as a qualified intermediary for a client if the attorney has performed services for the client any time during the two year period ending on the date the relinquished property closes, unless those services are limited to the client’s 1031 exchange.

Can you do a 1031 exchange on short term capital gains?

The answer is yes, but the IRS needs to see two things before they consider your property an investment. First, you need to hold it at least a year so that it would qualify for long-term capital gains treatment (they don’t want you turning short-term capital gains into long-term capital gains by doing an exchange).