Video - Can you do a 1031 Exchange if You Don’t Yet Own the Property?

So maybe you don’t own the property yet. You just have a purchase agreement that says you can buy a property. Now somebody comes along and they want to buy your purchase agreement. You don’t even have the real estate. All you own is a contract or option to acquire the property. Can you do a 1031 exchange when you don’t yet own the real estate?

In some states, when you sign a purchase agreement, under state law you are treated as the equitable owner of the property. So for state law purposes you may be considered the owner of the property notwithstanding the fact that you haven’t closed on it yet.

For federal tax purposes the definition of real estate in the code includes options to purchase real estate. So perhaps this is an interest in real estate that you have. The more interesting question is this: “is this interest in real estate that you have like-kind to fee title?” In the realm of leases, a leasehold of less than 30 years is not considered like-kind to fee title. So it’s a lesser interest if you have a leasehold of less than 30 years. Perhaps having a mere option to acquire property is similar to the shorter term leases, and perhaps it’s not like-kind to fee title. If you’re in this situation, you probably need a sophisticated tax advisor to advise you of your rights and opportunities.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

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