On a 1031 Exchange where a property is sold and the proceeds are invested in another property, am I correct that the acquired propery must be of equal or greater value of the property sold?
Example: Property A is sold for $X (net of selling costs) and its mortgage of $Y was paid off. Therefore, as long as Property B must cost $X or more for the transaction to be completely tax exempt?
Keeping in mind that the taxpayer cannot touch the sales proceeds (an intermediary must be used), to defer all the gain on the property given up, the acquisition cost of the new property must equal or exceed the sales proceeds of the old property.
If $Y is a part of $X, yes. (If $Y is in addition to $X, then the new property must cost $X + $Y for all the gain to be deferred.)
In fact, based on those facts, it might very well be a 1031 exchange.
and to think I was about to post a compliment to this group, grateful to have gotten beyond its sins of the past where any use of the term "sold" would immediately be pounced on as not being a 1031 exchange.
I was under the impression that pretty much anyone could serve as the Qualified Intermediary, but you would want someone who could make sure all the paperwork is done right. So maybe your buddy is not the best choice. In addition to the standard (and not to be trivialized) "make sure they have lots of experience" and "make sure they are bonded and/or insured", I noted these limitations, which sort of surprised me:
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Anyone who is related to the taxpayer, or who has had a financial relationship with them within the two years prior to the close of escrow of the exchange can not be used as the QI. This means that the taxpayer cannot use their current attorney, certified public accountant or real estate agent. A corporation or other entity to act as Qualified Intermediary owned by your CPA, CPA firm, real estate agent or attorney is likewise disqualified.
Without indicating that there's an accomodator (or middleman - for a multi-way exchange), a sale followed by a purchase isn't an exchange. Otherwise, a sale does not constitute an exchange. If there's a sale, there's no exchange - by definition.
For purposes of discussion, it was already a given by the OP that it was indeed a 1031 exchange. He wasn't asking if the transaction qualified as a 1031 exchange, he was asking about one of the many rules that apply to deferring some or all of the taxable gain from such a transaction.
The intermediary can have no other business relationship with the taxpayer. That omits the taxpayer's accountant, banker, insurance agent, etc. There are firms that exist to serve as accomodaters on
In tax law, "sale" and "exchange" have different definitions. For IRC Section 1031 to apply, the transaction has to be an "exchange" from the taxpayer's point of view. If it is a "sale," then the taxpayer cannot use Section 1031 to defer recognition of gain.
Folks who cannot cope with specific, legal definitions existing for tax terms that have slightly (or significantly) different meanings in general usage should find another line of work. Although I sometimes do the same thing Dick did in the first post (use with its general meaning a term that has a different tax meaning) it's sloppy and leads to time wasting exchanges such as the one between Stussy and Faver.
of course, I am wrong here. Lack of sleep allowed me to forget that there are not separate code sections for simultaneous and delayed exchanges; they are both covered under section 1031.
Mark Bole: your posts have been spot on. I feel no need to comment further.
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