How Long Do I Have To Hold A 1031 Exchange Property?
There is no set rule in the IRS code. However, it is the general thought that to complete a 1031 exchange, an investor must hold the property as an investment for at least 12 months. I advise investors to plan on holding their property for at least 13 months before putting it back on the market – this will rule out any doubt that they intend to treat the property as an investment.
How Long Do I Have To Buy A Replacement Property?
You have 45 days from the closing or from the sale of your old property to identify up to 3 properties you’re interested in purchasing. The three properties should be without concern for value. After identifying the three properties, at least one of them has to be closed.
For instance, if you purchased a property for a million dollars and sold it for $3 million, and are planning to invest the full $3 million, you can buy three $1 million-dollar properties. You can also purchase two properties, one for $500,000 and one for $2.5 million, and defer all tax. The amount has to be equal or greater in value than the property you’re selling.
How Do I Know If I Will Qualify For A 1031 Exchange?
Everyone qualifies for a 1031 exchange as long as the property they’re selling is an investment property. There is no requirement that you need to be a U.S. citizen. You can be a foreign investor and sell a property you currently own to purchase another property and have it be part of a 1031 exchange. You can buy anywhere in the continental U.S., the U.S. Virgin Islands, and Puerto Rico.
Who Holds My Sale Proceeds?
A qualified intermediary holds the proceeds. A qualified intermediary is a term given by the IRS to a third party that acts as your escrow agent and fiduciary. They, along with your attorney, guide you through all of the requirements and deadlines of a 1031 exchange so that it is completed lawfully and successfully.
Can Anyone Serve As A Qualified Intermediary?
Yes. Anyone can serve as a qualified intermediary. Qualified intermediaries are not regulated by any federal or state agency. Unlike real estate brokers or mortgage brokers, they are not required to have licenses. However, the IRS code specifies that neither parents, children, siblings, or anyone who’s had a business relationship with the investor in the prior two years can serve as a qualified intermediary.
If I Select A Qualified Intermediary, Do I Still Need A Legal Or Tax Adviser?
You need both a legal and tax adviser. The qualified intermediary is an expert on 1031 exchanges. They will set up an escrow account and will help facilitate the completion of the 1031 exchange. However, they are not CPAs and may not be qualified to give any tax advice. Likewise, your CPA is not an attorney and cannot provide legal advice. A 1031 exchange is a total team effort!
Can I Exchange My Primary Residence?
If your primary residence is a multi-family home and you did not live in every single unit, you can exchange your primary residence. If any of your children were living in the unit or units and were paying fair market rent, you can also exchange your primary home.
For example, if you had a three-family home and you lived in one apartment, and you rented out the other two, you could exchange your primary residence. Two-thirds of the value of the sale could be used for a 1031 exchange. If it was a $3 million home, $2 million of it could be allocated to the two investment properties.
You could also divide your primary residence if it’s a multi-family home so that the units that are non-owner occupied can become owner-occupied. The money allocated to those units can be used to purchase replacement property, and it would qualify for a 1031 exchange.
Can I Exchange My Vacation Home?
Generally, a vacation home cannot qualify for a 1031 exchange. However, if it’s rented the majority of the year and not sitting vacant, it may qualify as an investment property and not a vacation home. Otherwise, it is considered a second home.
For more information on Holding A 1031 Exchange Property In NY, a free case evaluation is your next best step. Get the information and legal answers you are seeking by calling (212) 748-9477 today.
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