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like kind exchange of rental property to new purchase of vacation home/ rental property

Level 2

Client has sold duplex rental property that he had for 10 years and has made a long-term capital gain of $100,000. He subsequently purchased a lake property for 250,000 that he plans on using for both personal time and when not using  personally,  he will rent out.  he plans on renting out the lake home property approximately 40% of the year.

1.   Can this be done as a like kind exchange? 

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Level 15

But if he deposited the money into his checking account, that prevents the like kind exchange from happening.  He needed a third party to handle the cash in order to qualify for a like kind exchange.

This week's special - free roadrunner dinner with every return (legal disclaimer - you catch it and we'll cook it)

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Level 15

Ignoring whether or not the property acquired qualified for a like kind exchange, since it sounds like he got the cash, deposited the money in his checking account, and wrote a check for the new property - no.  Once someone touches cash, the like kind exchange route is dead.

This week's special - free roadrunner dinner with every return (legal disclaimer - you catch it and we'll cook it)
Level 2

thank you Iron Man, but he did buy the new property within the 45 day timeframe for like kind exchange.  and the new property was transferred to him within the 180 day limit.  so I am still confused as to whether this is a like kind exchange. I do appreciate your expert advice.  I follow you all the time and appreciate your input.  he did deposit his original sale into his checking account, and within 45 days he had already purchased the second property.  he did not buy the second property from the same person he sold the first property to .  thank you.

Level 15

But if he deposited the money into his checking account, that prevents the like kind exchange from happening.  He needed a third party to handle the cash in order to qualify for a like kind exchange.

This week's special - free roadrunner dinner with every return (legal disclaimer - you catch it and we'll cook it)

View solution in original post

Level 2

thank you Iron Man, you are awesome.

Level 15

You betcha!

 

This week's special - free roadrunner dinner with every return (legal disclaimer - you catch it and we'll cook it)
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Level 15

"he did deposit his original sale into his checking account," therefore he did not meet all the requirements of IRC 1031. You gotta use an intermediary, or do a same day exchange. 

Mr Starker start the whole ball rolling for doing a delayed exchange and many rules & regs have been written since. Hopefully he didn't ask you any questions before he did this. 

https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx


ex-AllStar