The individual or the entity’s intent in selecting a replacement property is what qualifies as a 1031, and not the property itself. Vacant land, cooperative apartments, condominium units can all be eligible as replacement properties as long as the exchangor, which is the person doing the exchange, has the intent of investment.
What Happens If I Change My Mind And Want To Cancel The 1031 Exchange?
If you change your mind, you will need to notify the Intermediary. After the period has expired, the Intermediary will refund your money, and tax will be owed on the profit without penalty. You will then pay the long-term capital gains tax as if you had sold the property initially without ever contemplating a 1031.
What Is Meant By the term Boot?
Boot is a term used to describe any non-cash or cash that is held by the seller or exchangor. In a scenario where the exchangor is given a Rolex watch and $2 million, the Rolex watch is taken by the seller, and the value of that watch becomes taxable and considered the same as if it was cash.
If the seller or exchangor sold a property for $4 million dollars and took $2 million dollars of the $4 million and deposited it in the bank, that $2 million dollars would be a boot. Basically, the seller is receiving it, and it’s not going into the 1031 exchange so it would be taxable.
What Are The Different Kinds Of 1031 Exchanges?
There is only one 1031 exchange and it has very strict rules. The 1031 exchange is an exchange of properties. You can exchange different properties such as an apartment building for vacant land, or you can exchange a condominium for a doctor’s office building.
However, a reverse 1031 exchange is also possible. In a reverse 1031 exchange, the exchangor first buys a property and then lists the other property that they wish to sell. The property is listed for sale after the replacement property was acquired. However, the IRS states that you can’t have both properties in your name at the same time. In this case, the qualified Intermediary will act as an exchange accommodation titleholder. The Intermediary will create an LLC to take title to the new property. Once the seller sells his old property, the Intermediary will transfer the new LLC from their name to the seller exchangor’s name, and they’ll become the owner of the new property.
What Is A Reverse 1031 Exchange?
A reverse 1031 exchange is done when a seller sees a property that they want to buy right away before their own property is on the market. By using a reverse 1031, the seller takes the title in the name of the qualified Intermediary, who also becomes the exchange accommodation titleholder, and an LLC is typically created. The Qualified Intermediary will own the LLC on paper. The seller could then list his building for sale, sell the building, and the qualified Intermediary upon the purchase of the building will transfer the title of the new building to the seller. Basically, a reverse 1031 allows you to buy a property before you even sell your old property.
Can I Sell Or Buy More Than One Property In A Single 1031 Exchange?
Yes. You can buy more than one property in a single 1031 exchange.
Can I Pay For Closing Costs With My Exchange Funds?
Yes. If you sell a property for a million dollars and you pay $100,000 in closing costs, you do not have to invest a million dollars into a replacement property. Because you spent $100,000, you can invest the $900,000. Let’s assume that in the $900,000 purchase, there are $30,000 of closing costs; you can then find a property that will cost you $870,000. As long as the purchase absorbs all of the money left, there will be no tax.
Additional Information On 1031 Exchanges In New York
A 1031 is something anyone involved in selling real estate should think about. The cost of a 1031 exchange in the state of New York is minimal for the qualified Intermediary and the attorney. Depending on the property that’s being sold, the cost can range between $3,000 to $5,000 for each property, or more or sometimes less. Since the IRS permits it, there’s no reason not to do a 1031 exchange if you qualify.
For more information on 1031 Replacement Properties In New York, 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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