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patperry2766
Saginaw Texas
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I received some property that had been in the family for years due to the dissolving of a living trust(raw land-no home/barn on property), and I'd like to sell it and find some land closer to home. What I think I know:
1. You have to use an exchange agent to hold the proceeds from the sale
2. You have 45 days to identify the property you want to purchase
3. You have 180 days to complete the purchase of "like" property
4. The property has to be "like" in the sense that raw land for raw land, not raw land for land with a house for residential purposes already built on it
5. Land has to be considered an investment
The current property that I have for sale has a 1-d-1 ag exemption, do I need to look for property that has the same ag exemption? I would like to find property that has the ability to generate some form of "income" no matter how small to be able to maintain the ag exemption.
My questions:
Is it a PITA to do the 1031 exchange or would it be better just to sell the land, pay taxes on it and not be constrained by the "like" clause and the 180 day time guidelines in the 1031. I already have an offer on it, and my tax guy estimates that I'd owe about 25K if I sell it outright.
Generally, how much does an exchange agent charge to handle the process. I know there will be varying amounts.
Do I need to make sure that the exchange agent carries fidelity bond coverage and errors and omissions insurance coverage with the money being put in a qualified trust/escrow account?
Am I required to buy the same size piece of land? The property for sale is 56 acres way out in the country where it's relative cheap. If I want to move closer to town, then there's no way I can afford to buy a "like" size piece of property. I think were looking somewhere in the 20-30 acre range.
I've researched some on the internet, but as of yet called an exchange agent. What questions do I need to ask and to protect myself financially to make sure I don't loose the money they'd be holding in escrow?
Thanks
* This post was
edited 01/11/18 05:20am by patperry2766 *
Courage is the feeling you have right before you fully understand the situation
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monkey44
Cape Cod, MA and Central Fla
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This is not the right place to ask this question. Do you have a tax attorney or accountant? That's who you ask, and it's worth a consult fee to get the right info.
Yes, the exchange agent holds he funds and pays out all monies associated with the exchange.
I've done 1031 exchanges. They are not complex, but you need to know the laws and structure the paperwork properly, so fee for advice is well invested.
The last one I did was for two residential homes in California over twenty years ago - fees to agent were $1500 (each property), plus whatever deed and transfer fees are appropriate in the county/town where you sell and buy. Fees are probably a lot higher now.
Monkey44
Cape Cod Ma & Central Fla
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patperry2766
Saginaw Texas
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I plan on consulting a professional, I just wanted to make sure I had the basic grasp of the subject and to know if anyone could offer personal insight from having done it before. That way, I'd be better prepared and know what questions to ask.
I would never use this forum as a place to seek legal advise, but people might be able to offer guidance for educational purposes.
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cewillis
Tucson, az, usa
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Expert advice needed. However, in my opinion and experience, so-called 'exchange facilitator' companies are very far from expert, and tried to give me some bad direction. Be sure you find out, and know what you're doing before giving anyone any kind of authority over your property or money -- and how much of your money are they going to keep.
I have done an exchange, and I'm quite sure you don't need the same size parcel. In fact, the 'like kind' is/was kind of blurry. In my case, I exchanged 2 unfurnished rental properties in Ca for 1 furnished rental in Az. Then after a few years, I 'changed my mind' and converted the new rental to a primary residence. The only issue is that I'm stuck with the basis of the original 2 properties, which were almost fully depreciated. (so near zero basis if I ever sell the second property)
First question is - how much are the taxes if you just sell?
If relatively small, I'd be tempted to go that way.
Cal
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patperry2766
Saginaw Texas
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Well, won't work for me. I haven't owned the land long enough and since it would or could be intrepreted by the IRS that the land was ultimately be used for personal use then it might trigger an audit.
Don't have the fortitude to deal with them.
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jalichty
Lander, Wyoming 82520
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The rule for a 1031 exchange is property used in a trade or business or held for investment in exchange for property used in a trade or business or held for investment. That means a person could exchange bare land for improved land and utilize the 1031 rules. As far as the exchange agent charges, they would be much small than the $25,000 tax you are talking about. Was the land you now own somehow or other used in farming or some other ag business? If so, you could do an exchange and the property doesn't have to be the same size. I had a client many years ago who sold numerous parcels of his ranch and did 1031 exchanges for operating rental buildings. Only problem was the carryover basis, unimproved ranch land didn't have much basis to carry to the new property. Have you talked to a professional, like a CPA yet? If not, get on the phone as soon as possible to one and get some professional advice.
John A. Lichty
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patperry2766
Saginaw Texas
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Yes, I spoke with an 1031 agent and her feeling was that I was trying to do something that would be "frowned upon" by the IRS. part of my education has been that it's really designed more for a business or investment purposes, not for personal property. She also said that since I haven't "owned" the property for at least two years, that would throw up a big red flag. She further went on to say that it would be blurring the lines between investment and and personal property even if I carved out an acre of the land and considered it my homestead.
I have found some more information today that leads my accountant to believe that the tax burden will be significantly less than what he originally anticipated.
When my grandpa died in 2009, the basis of the value of comparable land sales in 2008 put the price per acre somewhere around $1900 per acre fair market value. If I'm able to sell it for somewhere around $2200-2300 an acre, my tax burden should be less.
* This post was
edited 01/11/18 03:52pm by an administrator/moderator *
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campigloo
Baton Rouge, La
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I don't think inherited land will fall into a capital gain. You may not have any tax. Get a reliable closing atty to advise you.
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patperry2766
Saginaw Texas
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Would it be considered inherited land if I received it as a result of a dissolution of a trust prior to my father's death in which he was listed as a recipient of the trust? My CPA doesn't think so.
The land was suppose to go to the remaining children who were alive at the time of my grandfather's passing, namely my dad and aunt. He disavowed any interest in the trust passing it to me. We did this while he was alive to try to get rid of his assets just in case he eventually had to go into a nursing home and Medicaid would start paying. I didn't think time was on our side because of the 5 year lookback rule with Medicaid. The property transferred ownership to me in early November.
He ultimately ended up passing away in late December, so hindsight being what it is, we probably should have done something different, but it is what it is.
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jalichty
Lander, Wyoming 82520
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You would have the same holding period as your grandfather, but, since it appears to have been a gift, your basis would be the same as his rather than getting a step-up when he died, if I read your post correctly. As far as owning the land for a long or short time, that is somewhat irrevelant(sp) to the question. If the land was held personally, then it will not qualify for a 1031 exchange, regardless of the holding period. Check back with an accountant, not a 1031 agent, about the holding period and basis. 1031 agents are not necessarily schooled in the law and it is somewhat complex.
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