5 Uncommon 1031 Exchange Questions

1031 exchange questions

We have answered many frequently asked questions about 1031 exchanges. Today we'd like to look at some less common questions. Here are a handful of uncommon questions we've recently been asked about 1031 exchanges.

Is it possible for my ex-wife to quitclaim her interest in the relinquished property to me prior to closing so that I can 1031 exchange 100% of the proceeds?

In this situation, you arguably have not “held” your ex-wife's 50% interest for investment or business purposes. In order to qualify, the property must have been held by you, so this is likely not a good idea.

I’m considering doing improvements to the replacement property. Does the work have to be done before I close or can the contractor do the work after closing? Also, can I pay any invoices for repairs to the house at closing on the sale of the relinquished property to reduce the amount of taxable boot?

The improvements will need to exist before you receive them, so either the seller will need to make the improvements before the replacement property closing, or the qualified intermediary will have to take title and hold the replacement property until the improvements are constructed, and then transfer the replacement property to you (within the 180 exchange period).

How do I allocate the proceeds from the relinquished property if I’m buying 2 replacement properties? Can I put most of the money into one property or does it need to be a specific percentage?

You can allocate the funds in any proportion that you want. The basis on the multiple replacement properties will be in proportion to the values (not the equity).

  • 1031 Hotline: If you have questions (common or uncommon) about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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