I like to seek advice if the following deal can be consider for 1031 exchange?
On 3/7/05, I sign a contract to sell my condo for 44,000.
Collect earnest money but no closing yet on this deal.
Closing schedule to be end of March 2005.
On 3/9/05,I sign a contract to buy a condo that cost
$ 20,000.I pay earnest money of $500 on that date.
The closing will be 3/14/05 and cash purchase.No loan.
Question:-
Can I claimed 1031 exchange for my sale of 44,000 condo even though the purchase closing date is earlier than the sale($44,000) of my condo?
But the contract date for sale is ealier than date of purchase.
Thanks for your reply.
The buyer is paying his purchase (buy my condo)through a bank.But I am buying cash for my condo price 20,000.
How much does it cost to ararnge for 1031 exchange ?
I am not sure if I wanted to 1031 now,since the net profit is not that a big sum.
Is this true that when investor buy property in cash,the tax man will want to know where he gets the cash?
What if I pays cash 20,000 for my condo,will tax man ask questions?
My brother bought cash too for $30,000 but so far no question from tax man yet.
As I see it, no this would not qualify for a 1031 exchange.
Assuming that you have met the requirements that you have held the selling property for at least one year and that it was an investment (not personal), you still would not qualify because the value of the buying property must be the same as or greater than the selling property.
Dave T would probably be able to explain it better than I.
Your replacement property purchase price is a lot less than your relinquished property sale price. The difference in the sale prices would be taxable (to the limit of your sale profit) even if you put a reverse exchange in place in time.
You don’t tell us what your net profit is on the sale of your condo. In addition to your capital gain, don’t forget to calculate your tax liability for unrecaptured depreciation too.
I am guessing that you don’t have that much profit in the sale of your condo to shelter to justify the cost of the exchange. A qualified intermediary might charge around $750 for a forward exchange with direct deeding. A reverse exchange is more expensive.
You imply that you have also accepted cash earnest money from your buyer. Any cash you receive directly is taxable boot, though it is still possible to complete an exchange with the balance of the sale proceeds. Next time you are ready to buy and sell your investment property, consult a qualified exchange intermediary well before the proposed settlement date. A forward exchange requires the use of a qualified intermediary. The IRS does not allow a forward exchange when you do it yourself without a qualified intermediary.
You should have looked into this type of idea prior to signing any agreements, but then again, it doesn’t sound like there’s allot of profit involved her, even if it’s 100% owned property.
First, yes it can be structured as a 1031 exchange transaction if you purchase first and sell second. It is referred to as a REVERSE 1031 EXCHANGE transaction. These are more complicated and more expensive, but are done all the time.
Second, as the transaction stands in your post, you are trading down in value and DaveT has pointed out the issues involved there. You can always structure it as a combination Reverse/Forward where you buy the first property, sell your relinquished property and then buy a second replacement property so that your values line up correctly and you defer 100% of your capital gain taxes.