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Question About a 1031 Real Estate Transaction

I am getting ready to settle on my new home next week. The previous owner did not live in the home, but rented it out. We had already signed a contract, but I got something in the mail stating that our previous agreement is now voided and the sale is now going to be an "exchange" of property with an intermediary. I read through the paperwork and apparently the seller is utilizing a tax law called "1031" which allows the seller to roll the proceeds from the sale of one income property to another without being taxed for capital gains.

Anyway, long story short: should I be concerned that this change has been set up? Does the fact that the sale is a 1031 sale have any effect on me? Should I consult a lawyer specifically related to this issue? The home is a duplex in which I will live in part and the other part will be rented.

Thanks in advance for any information.

Reply to
Rob
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From his end, what he's doing is swapping the property he owns for another. This is how he'd avoid having the sale of this on be a taxable event for him. He's trying to arrange for you to buy the other property to then swap with him. If all goes right, the deal will be transparent to you, you will own the property you wish to buy at the price you agreed to. I'm not so comfortable that he sprung this on you the way he did, but maybe he was trying to arrange this and the deal just went through for him on the second property. So I wouldn't be so quick to attribute any bad motives to him. The deal is now a bit more complex than before. I would recommend you run this by a real estate attorney familiar with the 1031 exchange, and have him make sure all new paperwork is in order. JOE

Reply to
joetaxpayer

I read this differently. Consult a tax professional, but it doesn't seem like you, the seller, is going to have to do anything. More likely the buyer is trying to set up a paper trail so he can qualify for a 1031 (Starker) exchange, on the advice of his lawyer. But it's not clear, so talk to your lawyer first.

RL

joetaxpayer wrote:

Reply to
raylopez99

I'm the original poster and I'm the buyer. I believe the transaction permits the seller to roll over the proceeds of the sale and the gains into another property without taxation....

rayl> I read this differently. Consult a tax professional, but it doesn't

Reply to
Rob

Yes Rob, you're the buyer. Like I said, I doubt this pertains to you as much as it does to the seller. With Starker exchanges, you have to follow the letter of the law exactly or your (seller) exchange will lose its tax advantages. So the Seller is trying to set the (paper) record straight, because of some technicality he screwed up. That's my best guess, he's setting the record straight, but do talk to your lawyer.

RL

Reply to
raylopez99

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