S
ection 1031
is an IRS code
section
that lets you defer
tax (in some cases a LOT
of tax). Of course they don’t
make the deferral
easy, but it’s not
impossible, either.
One of the rules that
causes a lot of angst,
especially in a fast
moving real estate
market like we have now, is
the requirement that within 45
calendar days you must iden-
tify a list of properties you
might want to buy. Whatever
you buy to complete your
exchange must be on this list.
The identification is made on
a form provided to you by
your Qualified Intermediary
(the 1031 specialist that the
law requires you use to guide
you through this process).
The identification period is
calendar days (NOT busi-
ness days), and begins on the
date your sale closes.
It includes week-
ends and holidays
— which means if
your 45th day falls
on the 4th of July
your identification
must be received by
your Intermediary by mid-
night of that date. Email is the
customary method of trans-
mitting your form to your
Intermediary.
The rules allow you to iden-
tify three properties without
limitation. If you identify
more than three properties the
IRS rules narrow and become
tougher: if you identify four
or more properties, the sum
of the purchase price of ALL
of the properties on your list
cannot exceed twice the sales
price of your old property.
For example, if you sell your
old property for $100,000 and
list four potential replacement
properties, the combined pur-
chase price of ALL FOUR
PROPERTIES cannot exceed
$200,000. Had you only listed
three properties, the com-
bined purchase price of the
three can total $20 million
and beyond — because there’s
no limit to the value of the
replacement properties if your
list is three or less.
The properties you list are
properties that you
might
buy
— you are not required to
buy all of them — but you
are required to buy at least
one of them to complete your
exchange. You can change the
list as much as you want until
midnight of the 45th day – at
that point the door slams shut
and the properties on your list
are cast in stone.
But what if a property you list
is no longer available? A real
possibility in a fast moving
market like we have now. The
answer depends upon where
you are in the 45-day limit.
If you still have days left, you
can remove the unavailable
property and replace it with
one that is. For example, if it’s
day 30 of your 45-day period
and one of your three listed
properties just sold, you can
remove that property from
your list and replace it with
another property. However, if
you’re beyond the 45th day,
your list is unchangeable and
you only have two properties
left to choose from to com-
plete your exchange (assum-
ing that you listed three prop-
erties to begin with). The 45
days are cast in stone.
So how do you deal with this
in a fast moving market? My
best advice to our clients is to
start as soon as you list your
property for sale. As soon as
the listing process is complete
you should start looking for
possible replacement proper-
ty. Start looking for properties
in your price range in your
target neighborhoods. Figure
out where you want to buy
and what your options are
within that area, then keep
an eye on the area and get a
sense for how long things stay
on the market before they sell
and what the true market pric-
es are. Then as soon as your
property goes under contract
you want to get serious about
making an offer.
Zero in on your choice prop-
erty and get it under contract.
Set the closing date for six
weeks after the contracted
closing date of your old prop-
erty. Why six weeks? Because
six weeks is halfway through
the 45-day identification peri-
od — if you can close your
purchase during those 45 days
you don’t have to worry about
making a list at all. Six weeks
gives you some flexibility if
the closing of the sale of your
old property gets delayed. It
also gives you time to find
another property if something
causes the closing your first
choice to fall through.
Although the rules are restric-
tive, they’re not impossible if
you have a good plan – and a
good plan is critical in a fast
moving market like the one
we have right now.
...they don’t
make the
deferral easy,
but it’s not
impossible,
either...
By Gary Gorman
founder, The
1031 Exchange
Expert’s; LLC
R
eviewing
the
1031
i
dentification
R
ule
Gary Gorman
is the
founder and owner of
1031
Exchange Experts’ LLC
,
an independent national
qualified intermediary. A
retired CPA, Gary is the
author of the best-selling
1031 exchange book:
Exchanging Up!
, and a
contributor to numerous
publications, including
Forbes, The Wall Street
Journal, Bloomberg’s
and
The New York Times
. He’s
also a contributing author
of books by Donald Trump
and
Rich Dad/Poor Dad
author Robert Kiyosaki.
He can be reached at
or nationwide, toll free at
866-694-0204.
a c c o u n t a b i l i t y
The 1031 Exchange Experts’ LLC are the FIRST
intermediary to let you see
YOUR
exchange
funds, in
YOUR
exchange bank account, in the
time and place of
YOUR
choosing. Even now few
QIs do this. They’re not required to.
We do it because we want your trust.
Call us!
We want to be your 1031 Qualified Intermediary.
N a t i o n w i d e , t o l l - f r e e :
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May 18-May 31, 2016 —
COLORADO REAL ESTATE JOURNAL
— Page 37
