USA To Practicing Accountants regarding 1031 Exchange

[Las Vegas]

I'm new to Accountant Forums and this is my first post. Thank you for reviewing my concern. My friend and I (not married) bought 2 single family houses in California well over 10 years ago. Today the equity (or capital gain if sold) is roughly $800,000. My friend and I have decided to go on our own separate ways. I have moved to Las Vegas and he stayed in California. My friend has decided to sell both properties with my share being half. Is it okay for me to do a 1031 Exchange on my $400,000 share to buy like property in Las Vegas WITHOUT MY FRIEND? Will the IRS allow me the 1031 benefits even though I buy in Las Vegas without my friend?

Next concern is that the house I want to buy in Las Vegas using the $400,000 gain as down payment has a selling price of $700,000. Is it okay for me to buy for more than $400,000 in order to do the 1031 Exchange? Or am I limited to buying at the price of $400,000 or less?

Last, can you recommend a 1031 Exchange Administrator who can take care of this transaction?

 

[Dave In Capital]

Firstly you want to make sure it's classified as an investment property. Maybe you've been claiming rental income on the property in your yearly tax filings. If the IRS thinks it's simply a second home then Sect 1031 is a non-starter.

Since Sect 1031 is a federal tax code, I don't see why reinvesting in a different state would preclude like-kind exchange treatment.

I'd imagine that if this property is considered an investment by the IRS, then your tax filings have indicated your friend as being a partner of some type. I don't know if you've gone so far as to set up some kind of an S Corp or LLC status for your real property ventures. But if not still I don't think that's necessary. In any case I know of no tax code which forbids the division of equity on the basis of stake in a partnership.

As long as the price of the like-kind asset(s) is equal to or greater than the equity recognition being deferred, then deferral of said equity recognition need not be precluded.

Please be mindful of the timing of the transactions. There are certain stipulations about that.

Disclaimer: I am not a tax accountant. But I am a degreed accountant whose line of work brushes across taxation theory occasionally. Not to mention like-kind exchanges is a fundamental topic anyway. But yes certainly with that much potential liability involved you want to consult with a professional. I don't rule out that some of my input is less than accurate.

 

[Las Vegas]

Thank you for the reply, Dave in Capital. I actually called yesterday 2 separate 1031 Exchange Administrators out in New York and Florida. I explained the situation and both said the same thing.

They said that both my partner and i can separately qualify for a 1031 Exchange if our vesting option is TENANTS IN COMMON and we must buy like properties. We would be able to do a 1031 on each of our share without both having to go on title together. We can buy separately. Current properties are investment rentals so i would have to buy the same in Vegas. And yes, i have a LLC and my partner has hers in a trust.