Tax implications on sale of vacant land - Posted by Rodney

import · October 9, 2003, 8:15pm

Posted by Nate(DC) on October 10, 2003 at 13:28:16:

#1 (a): Where is the LLC coming from? This is news to me. It sounds like the land is titled in your name, and it should stay that way. If you want the replacement property to be titled in a single-member LLC, I believe the IRS has recently ruled that this is OK. I think John Hyre posted something on this board recently to that effect. Since he is an attorney and I am not, I would have to let him confirm that.

#1 (b): Yes, there is still time to do a Starker exchange. You will need to have the buyer sign an addendum to the contract that this is a tax-deferred delayed exchange. Since this is no cost or impact to him, he should do this no problem. The next step would be to line up the intermediary ASAP. I’d call Starker Services - their phone # is (800) 332-1031 and ask for their fees. You might also want to shop around since fees for this stuff do vary. With Starker Services it will be around $1000 to do the whole thing. William Exeter of Diversified Exchange also posts here sometimes; their web site is http://www.diversifiedexchange.com/. I wouldn’t worry about the fact that the exchange companies aren’t local; the whole thing is done by fax, fed ex, and wire transfer anyway.

2: I believe (I am not a lawyer, so don’t take my word as gospel, it’s just my layperson’s interpretation of the regulations) that non-arms-length transactions (e.g. buying or selling to or from you or a related party - i.e. a relative or a corporation you control) are, if not strictly forbidden, then tightly controlled. You might want to ask the exchange intermediaries for guidance here.

A better strategy might be to start figuring out where you would like to move to; have THAT be your replacement property, rent it out for a year, and then move out of your current house into the new property, converting the “replacement property” to your principal residence and converting the old principal residence to a rental.

Again, this is not legal or tax advice, just ideas from someone who knows a bit about this stuff.

NT

import · October 9, 2003, 8:15pm

Tax implications on sale of vacant land - Posted by Rodney

Posted by Rodney on October 09, 2003 at 20:15:22:

Hello board,

I have approximately 8.5 acres(free & clear) in a nice sub-division where big custom homes are the norm in the estate area. In the sub-div two new builders, KB Homes and Mercedes Homes are building there with Eagle Homes and a bunch of custom builders. The property is about a few long blocks from the golf course, park, tennis courts and formal city area. The legal front side of this corner lot is about 465?. The right side of this lot is 795? and also faces a paved road that goes straight into the sub-division?s city and entrance. Facing it from the front, the left extreme corner touches a huge man-made lake. If someone were to construct there they?d have a nice uninterrupted view of the lake.

I had this property for appox. 10 years and paid $45,000.00. The comps I?ve pulled from the county records show a lot on the same street, and of the same exact size on the other corner, sold for $170,000.00 about 5 months ago. The acreage selling price throughout the estates varies from 10k to about 35k/acre.

· I set up my price structure as follows:
· Entire 8.5 acres 25k(212.5k)
· Four acres lakeside View 32.5k/acre (130k)
· Four acres corner side 28.5/acre (114k)

Last month I put up a FSBO sign and have gotten about 1 call on average per day inquiring information and price. I got two, possibly three, callers who are interested in the entire lot. One, I don?t know if he was serious, but he wants to close right away for 187,000.00 cash. Another is also very interested at 190,000.00 for the entire 8.5 acres. He told me not to negotiate with anybody that he will buy it from me as soon as his son comes in from Baltimore on October 23, 2003. These two persons own land in the estate area and seem very serious.

My questions are:

Should I let each other know of there existence, and offers, to probably get a better offer? Or should I leave these offers as is and sign the first one who gives me a non-refundable 5% deposit?
When I sell, how can I set myself up to minimize the tax bite? Can I buy another property or home and avoid some taxes? I?d like to use a portion of these proceeds to invest in other R.E.

Well, thanks for reading and I sure hope to get some advice. By the way anybody in central Florida has a good closing agent or R. E attorney and CPA for this transaction.
Thanks again,
Rodney

import · October 9, 2003, 9:13pm

Re: Tax implications on sale of vacant land - Posted by Nate(DC)

Posted by Nate(DC) on October 09, 2003 at 21:13:26:

Rodney,

Since this is investment property, you can structure the sale as a Section 1031 tax-deferred delayed exchange to defer taxes on whatever portion of your profits are rolled over into the new real estate.

However, you do need to be aware of the restrictions on this - the big ones being

the sales proceeds have to be held beyond your constructive receipt while the exchange takes place - you can’t put the money in your bank account. You need an intermediary such as Starker Services (www.1031.com), which I have used and was happy with. There are dozens out there, so shop around.
The timeframe - you must identify the replacement property/properties within 45 days from the closing date of the sale, and must actually close on the properties within 180 days. These deadlines are fixed and can’t be extended, so be sure you leave yourself plenty of time to meet them. If you think you might have a closing within the next month or two, it might be prudent to start looking around now.

Good luck. Sounds like you made a good investment.

NT

import · October 10, 2003, 6:11am

Re: Tax implications on sale of vacant land - Posted by Rodney

Posted by Rodney on October 10, 2003 at 06:11:31:

Thanks Nate,
A few more questions if you can. Nate the guy who offered 187,000.00 is very serious with his offer he called last night and I accepted his offer.
1- Do I have time to for an LLC and stark ?
2- Can I purchase the residence(the mortgage)I own as an investment? I do plan to move in about eight months and rent this town house out.
Thanks again for your response.