FREQUENTLY ASKED QUESTIONS

1. Do I need a Qualified Intermediary?
2. If I am already in contract to purchase and sell is it too late to complete an exchange?
3. Can I keep some of the sales proceeds?
4. What happens to the sale proceeds while I am looking for a replacement property?
5. Can I use a family member to be my Qualified Intermediary?
6. What do I need to know about doing a 1031 exchange?
7. Do I have to purchase what I identify?
8. How do I identify property?
9. Can I "finance" some portion of the price on the property I am selling?
10. Can I build on property I already own?
11. Can I buy property from a relative?
12. What happens if I cannot find a replacement property?
13. Will the QI let me back-date my property ID form after the 45 days?
14. Can I purchase a property to use personally?
15. Can I purchase the property in another name?
16. Can I exchange stock that has a appreciated in value?
17. When can I start looking for a replacement property?
18. Can I purchase an interest in a property?
19. Can you give me tax advice?
20. May I purchase foreign property?

 

 

1. Do I need a Qualified Intermediary?
Yes, Section 1031 requires that an independent non-related third party has to be in charge of the proceeds and that an assignment of the rights to the property (agreement to purchase and sell) has to occur to a non related third party. [Back to top]

2. If I am already in contract to purchase and sell is it too late to complete an exchange?
No, we can still complete the exchange. [Back to top]

3. Can I keep some of the sales proceeds?
Yes, we call that "boot", however, any proceeds that you keep are taxable to you as either capital gains or recapture of depreciation. But we have certain strategies for you if you need some money. [Back to top]

4. What happens to the sale proceeds while I am looking for a replacement property?
Your funds are held by your QI in an interest bearing insured escrow account. [Back to top]

5. Can I use a family member to be my Qualified Intermediary?
No, the Internal Revenue Code clearly states that it must be an independent non-related individual. You the taxpayer (seller); your agent or agent; and anyone who (within a two-year period of the exchange transaction) acted as your real estate agent, broker, attorney, accountant, CPA, investment or financial advisor or broker is "disqualified" and cannot be your Qualified Intermediary. [Back to top]

6. What do I need to know about doing a 1031 exchange?
Making an exchange part of your sale does not add much to the process. You need to attach a simple "rider" to your agreement to sell (the property to be relinquished) and any agreement to buy (replacement property). You certainly need to know about the "deadlines" (the date requirements) for "identifying" then buying the replacement property – the 45 day rule and the 180 day rule. You have a limited number of days to identify and buy replacement property. We will explain this to you in writing and in detail and, when you sell your property, we will give you a "date calendar". [Back to top]

7. Do I have to purchase what I identify?
Yes, but not every property that you have identified. [Back to top]

8. How do I identify property?
We will give you forms for that purpose then you must mail, fax or hand-deliver the filled-out "identification" forms to us within 45 days of the sale of your property. [Back to top]

9. Can I "finance" some portion of the price on the property I am selling?
Yes, you can take a note and mortgage, however, that it can become taxable to you. We strongly advise you to consult your accountant or tax advisor about this subject. [Back to top]

10. Can I build on property I already own?
No, 1031 exchange proceeds can only be used to acquire replacement property from someone other than you. [Back to top]

11. Can I buy property from a relative?
Yes, but there are certain rules that apply if you sell it before a period of time goes by. [Back to top]

12. What happens if I cannot find a replacement property?
If you do not identify any replacement properties before the expiration of the 45 day rule, your exchange has failed, the tax deferral will be "disallowed" and we will give you your proceeds from the sale. However you then must pay the taxes on the gain from the sale of the property. [Back to top]

13. Will the QI let me back-date my property ID form after the 45 days?
No, to do so would be tax fraud. [Back to top]

14. Can I purchase a property to use personally?
Only property "held for business or investment use" is "qualified" for a 1031 exchange. So if the property will be held for your personal use and not rented out for a period of time, it will not qualify and the exchange will be disallowed. You certainly could, however, buy the property for legitimate business purposes (e.g., to rent), report same on your tax returns, then after a period of time, "change" the use to personal. [Back to top]

15. Can I purchase the property in another name?
Change of ownership of title after the property has been sold, in almost all circumstances will disallow the exchange. If you know ahead of time that you want to do this, change the title well before the property is sold. [Back to top]

16. Can I exchange stock that has a appreciated in value?
Exchanges certainly exist for property other than real estate. Stocks, bonds, options, instruments of indebtedness and interests in partnerships or beneficial interests in a trust are considered personal (movable) property and, as such, are not allowed to be exchanged for real estate (immovable property).
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17. When can I start looking for a replacement property?
You do not have to wait until the sale of your property to start looking, you may start anytime prior to the sale. [Back to top]

18. Can I purchase an interest in a property?
Yes, you can buy an undivided interest, also called a Tenant-in-Common interest (or TIC). These are usually larger properties with professional management in place and a solid return on investment. You cannot however purchase an interest in a real estate investment trust (REIT) because that is considered personal (movable) property like stock. [Back to top]

19. Can you give me tax advice?
No, as a Qualified Intermediary, we must remain independent. We can only discuss areas related to your exchange. If we render more advice than that, the exchange could be disallowed. [Back to top]

20. May I purchase foreign property?
No, qualified replacement property is limited to only property located within the fifty United States and the US Virgin Islands. [Back to top]

 

Commerce Title Exchange, LLC is a Qualified Intermediary and is precluded from giving tax or legal advice. You must consult with your tax of legal advisor about your specific circumstances.