Reverse 1031 Exchange - Can I do this? - Posted by tim

Posted by John Corey on April 13, 2006 at 13:46:01:

Technically you can do a reverse 1031. The rules are considered more strict for a reverse or maybe it is just that there are more ways to mess it up.

You might have already closed the door to a reverse depending on what has already taken place. Move very quickly to see if you still have the option open to you and what you need to do so that you do not cross the lines.

John Corey

PS. The rules are national so the state only matter when it comes to how might be a local 1031 facilitator.

Reverse 1031 Exchange - Can I do this? - Posted by tim

Posted by tim on April 13, 2006 at 05:55:52:

I purchased a property in March for $140,000.
I have another property under contract, also for $140,000. Closing date to be determined.

I have a rental property I purchased in 1993 from family for $30,000. I will be selling that property in a few months and expect to get around $270,000 to $280,000

Question - Can I do a reverse 1031 Exchange using the property I purchased in March for half of the proceeds and the second property for the remainder?

Re: Reverse 1031 Exchange - Can I do this? - Posted by gary

Posted by gary on April 15, 2006 at 20:23:48:

I basically agree with the other posters that you should check with an accountant. One thing they did not say, however: It is EXTREMELY expensive to do a reverse exchange. We were going to do one, but were scared off by the high price. And it is important to get a highly professional accommodator too–don’t go cheapo on a reverse exchange.

It may be too late to do a reverse exchange, though, since you probably did not involve an accommodator with the purchase of house # 1.

I also agree that the captial gains rate is low now. However, in CT we have a high state income tax, so we have saved on that too. Also, you may have to pay quite a bit on recapture–so you should figure in that too.

Good luck to you! Gary

Re: Reverse 1031 Exchange - Can I do this? - Posted by Frank Chin

Posted by Frank Chin on April 14, 2006 at 12:03:57:


I agree with the others, namely, speak to a 1031 facilitator. I was going to do something similar, and spoke to a number of them, though the transaction was not completed.

One thing that has to happen is the house you’re buying be deeded to the “facilitator” in the meantime, which would then have to held in in an “entity”, such as a C Corp. Some facilitators I’m told open an entity just to do the one transaction, which is better, while other facilitators may use one entity to do many, and they can do it cheaper. Ask how they plan to HOLD TITLE.

This one requirement may disqualify the property that you closed on, since its over and done with, and not deeded to a facilitator as required, but shouldn’t prevent you from doing it for the one upcoming. But if you plan to do it, you should notify the buyer that a facilitator will be involved and have the appropriate paperwork done. Make sure the time limits are observed for identification, and closing.

I also agree with the others that the Federal Capital gains are the lowest in years, but you’ll have to factor in State gains and recapture.

Good luck.

Frank Chin

Re: Reverse 1031 Exchange - Can I do this? - Posted by The Frisco Kid

Posted by The Frisco Kid on April 13, 2006 at 08:54:18:


Yes, reverse 1031’s can be done but rules have to be followed. Suggest you contact a reputalble exchange company and talk to them, you will need their intermediary services anyway. Don’t know what state your in so why don’t you post that and maybe the investors on this site can give you a recommendation.

Re: Reverse 1031 Exchange - Posted by dealmaker

Posted by dealmaker on April 13, 2006 at 08:08:35:

AFAIK, and I don’t think the rules have changed since my last 1031, NO. The one thing about which section 1031 is very specific is the timeline. Both for identifying and for closing.

Look at it this way, cap gains is at 15% so your “hit” is at a historical low, or you have a great oppty to acquire a couple more $140K ppties, WITHOUT debt service. That makes for real sweet cash flow.


Re: Reverse 1031 Exchange - Can I do this? - Posted by tim

Posted by tim on April 13, 2006 at 09:41:07:

I live in VA.

Re: Reverse 1031 Exchange - Posted by Sailor

Posted by Sailor on April 15, 2006 at 12:03:05:

Reverse 1031s certainly can be done (I’ve done it). Caveat: have a VERY good REI CPA, & make sure you dot your i’s & cross your t’s. Mine 16 years ago triggered my one & only audit, which was NOT fun. The odd thing was I didn’t get dinged for the 1031, but I DID get charged for not claiming some teaching income–which I had CLEARLY claimed. However, the tab was only $800, so I paid w/a smile, even though it was a double payment. The thing that threw the agent for a loop was that I had receipts for more xerox copies than I had claimed. He had a cubbyhole mind (no surprise), & all my little receipts didn’t jibe. He spend most of the allotted 3 hours adding up small receipts & never did look @ the big stuff. Tip: Schedule audit on Thurs or Fri mid-afternoon. As long as you appear earnest (though not too) & have lots of papers, you’ll probably just run through the appt & no harm w/be done, & no add’l appt w/be scheduled. The auditor w/probably be new or low level, someone who, like you, just wants to get through this, too (of course dinging you for something along the way).