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Can I use just part of the sales proceeds for an
exchange?
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Yes. For example, you only want half of the proceeds to be used
for a 1031 exchange. As part of the exchange agreement, you will
be asked to execute an assignment of your rights of a 50%
interest in the sale proceeds from the relinquished property.
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I entered into a sales agreement 3 weeks ago.
Is it too late to do an exchange?
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It’s not too late. You need to select a QI, however, as soon as
possible.
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I want to perform an exchange with my son.
Is that permitted?
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Yes. You should be aware of Internal Revenue Code § 1031(f),
which provides special rules for exchanges between related
persons. If either of you should dispose of exchange property
within two years of the exchange period, the exchange may be
disqualified retroactively.
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The property is owned in a Partnership.
Can I exchange my partnership interest?
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Partnership shares are not real property and partnership
security interests in real estate are not are cannot be
exchanged. Partnerships may use Section 1031 only if the entire
partnership exchanges its fee simple ownership interest for that
of another property.
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What are some definitions I should know?
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1031- Refers to the Internal Revenue Code section which
governs like kind exchanges.
Qualified Intermediary- An independent party that
facilitates the tax-deferred exchange. Cannot have been an agent
for the exchanger in the past 2 years.
Relinquished Property- The property that is given up
(sold) by the exchanger.
Replacement Property- The property that is purchased in
exchange for the relinquished property.
1031 regulations allow properties to be deeded
directly between the parties, just as in a normal sale
transaction. The taxpayer's interests in the property purchase
and sale contracts are assigned to the QI. The QI then instructs
the property owner to deed the property directly to the
appropriate party (for the relinquished property, its buyer; for
the replacement property, taxpayer).
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