Reasons to do a 1031/Starker Exchange and Resources for your questions about HOW

By
Real Estate Agent with Classic Properties

A 1031 Exchange, also referred to as a "Starker Exchange" is a method to defer payment of capital gains on the sale of your investment property.  It involves taking the proceeds from your relinquished investment property and using them to acquire another like-kind property.

Some basics you need to know about a 1031 Exchange are:

1. The property sold and the property acquired must qualify as a business or investment use (such as selling a duplex for $200k and using your net proceeds to acquire another investment property, such as a quadplex).  You cannot do a 1031 on the sale of your personal (owner occupied) residence.

2. You have 45 days to identify property from the sale of your current investment.  This is when you list the properties that you are considering purchasing.  You can ONLY PURCHASE something on this list when your 45 days are up.

3.  You have 180 days from the close of your previous investment, that you are trying to exchange, to close on any of the properties you identified.  It is important to understand that this does not mean 180 days from the 45th day of your identification period!  

4. A lot of folks mess up when it comes to conveying the title properly.  If John Smith is selling a property in which the title is conveyed to his name, he cannot purchase property in his corporation's name (Smith Investments, LLC).  In order to do an exchange, the title to your new property needs to be held exactly as the title on the property you wish to exchange.

5. The IRS requires that you use a qualified intermediary to hold the proceeds from the sale of the property you wish to exchange.  Once you have a contract on the property you intend to buy, the qualified intermediary will send the necessary legal documents to the title company/attorney where the closing will be held.  The IRS requires that the intermediary be independent, that is: no personal friend's, broker's, attorney's, etc.  

I had a customer use Starker Services, Inc. in California for an exchange here in Florida and my experience with them was fantastic.  They contacted me shortly after we had an executed contract on one of the properties my customer identified.  They contacted the closing agent immediately and requested the wiring instructions, sent the necessary documents, and wired the money in 24-hours prior to closing.  They also had the HUD-1 settlement statement with original signatures (the intermediary signs the HUD as well as the buyer) in by the day of closing!  Their fee was only $250 on this transaction, which is very competitive. 

6. To defer all of your capital gains tax, the property you intend to buy must be equal or higher in value than the one you sold.  You must re-invest ALL the cash proceeds from the sale of your property into another property or properties that are like-kind.

LINKS FOR MORE INFO ON 1031-EXCHANGES:

IRS website Link for 1031 

Awesome field Guide to 1031 Exchanges through Realtor.org (this has a lot of info)

FAQ page through the Federation of Exchange Accomodators

Internal Revenue Code - Section 1031/Wikipedia 

If you're interested in doing a 1031 Exchange in the Alachua County/Gainesville, FL area, please contact me and I'd be happy to assist you in identifying and closing on your property or properties. 

 

 

 

Angela Elliott is a licensed Florida REALTOR® with Century 21 Classic Properties in Gainesville, FL. Please visit my profile for more about me and browse my Gainesville, FL real estate website for additional Alachua County information and listings. Your phone calls are always welcome at (352) 256-7038 as are your e-mails to angela.elliott1@century21.com.  A portion of all my closed sales will be donated to the Alachua Co. Humane Society (View my mission statement).

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Anonymous
Anonymous

Hi Angela,

Great post.  Nicely summarized. 

How is your market doing?  We have been seeing a pick-up in activity since late February. 

Jun 03, 2008 11:52 PM #1
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Angela Elliott

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