1031 Exchange w/ Trust Property? - Posted by Gary (CA)

Posted by Dave T on February 06, 2002 at 08:41:43:

I am not an expert, but I agree with your facilitator. Intent does not determine eligibility for a 1031 exchange, but rather actual use at the time of the sale. Since the property was not actually in service as a rental, I suspect it is not eligible for 1031 exchange treatment.

Further, you do not say how you plan to use the property you want to acquire. That also is another factor in determining whether an exchange is qualified.

1031 Exchange w/ Trust Property? - Posted by Gary (CA)

Posted by Gary (CA) on February 06, 2002 at 08:02:13:

I need expert advice on 1031 exchanges on property held in a land trust.

I purchased a condo for $136k a week before 9/11 subject to the existing loan of $131k. Property was placed in trust with me as the trustee and me as the beneficiary. I’m in escrow on this now for $169k which should close in 3 weeks. I will make a short term capital gain of $28k.

I’m also in escrow on a SFH for $200k (FMV=$270). This property has been placed in a trust with my friend as the trustee. The assignment of beneficial interest will be done in escrow. This property is being purchased subject to two existing loans. It will require all the gain from the other property plus a bit more to do this one.

Question: How can I do a 1031 exchange on this? The relinquished property (or property I’m selling) is deeding from my land trust to a buyer. The replacement property (property I’m buying) is obtained by buying the beneficial interest of a trust that owns the replacement property. In other words, the first transaction, title is transferring via deed. In the second, no deed transfer is involved (that was done when it was deeded into the trust) but an assignment of beneficial interest of the trust is. Does this fail a like-kind exchange?

Gary (CA)

P.S. I’ve heard from a 1031 facilitator that my condo may not be an investment but a delayed flip and therefore not eligible for a 1031. But if intent is a factor, it was my intention to lease to a tenant/buyer (i.e., investment) with option to buy (I have the ads to prove this if audited) but was unsuccessful. The buyers just wanted to buy and not L/O. Is he right?