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Thank you in advance to anyone who looks at this post and replies. My question is: I currently own a contract on an apartment in a condominium that is going into closing in, roughly, 90 days. The seller of the complex has inquired if I would be willing to resell my contract to them at approximatley an 80% gain on my part. I am also looking at purchasing another peice of pre-construction property and am curious, would selling my contract and taking the proceeds from that and putting it into another contract on a pre-construction peice of property qualify for the tax-deferment of a likekind exchange (I think 1029 or 1031) or would contracts on houses be different from an actual house?

Seeking info,
-_- Alex -_-
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Thank you in advance to anyone who looks at this post and replies. My question is: I currently own a contract on an apartment in a condominium that is going into closing in, roughly, 90 days. The seller of the complex has inquired if I would be willing to resell my contract to them at approximatley an 80% gain on my part. I am also looking at purchasing another peice of pre-construction property and am curious, would selling my contract and taking the proceeds from that and putting it into another contract on a pre-construction peice of property qualify for the tax-deferment of a likekind exchange (I think 1029 or 1031) or would contracts on houses be different from an actual house?

I'm not an expert on 1031 exchanges, but I would doubt that this would qualify because a contract to purchase is not ownership. (Not to mention that it isn't clear that this is/would be investment property.)

Ira

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I've got to agree with Ira that a contract to purchase is not the same as ownership of real estate and likely wouldn't work as a 1031 exchange into another piece of real estate.

1031 exchanges must be like-kind for like-kind. One delivery truck for another, one lathe for another, one generator for another. With real estate, the language of sec 1031 defines every piece of real estate as like-kind to any other. So you can exchange an apartment complex for an industrial building, or a duplex for a piece of raw land, as long as both are used for business or investment purposes (no personal use).

Since a contract to purchase is not the acutal real estate, I don't think it would qualify for the broader definition of like kind given to real estate.

However, assuming you could sell the condo for roughly the same thing the developer could, you could just go ahead with the purchase and then do the exchange into another property. Keep in mind that the other property would need to be an investment and not your residence. You would have to rent it out for a period of time. There would also be some transactional costs involved - commissions, fees, etc. - that would eat into your profits.

I'd be tempted to take the money, pay the tax, and run, thanking my lucky stars along the way.

--Peter
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Thanks, Peter, that is what I though also and I then though, "Well since the keywords in a 1031 are like-kind and I am exchanging one contract for another..." What I plan to exchange it for is another contract on a community entering development in the next 3-6 months. Technically, it will be a "like-kind". One contract for another...

Still wonderin',
-_- Alex -_-
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What I plan to exchange it for is another contract on a community entering development in the next 3-6 months.

I seem to recall there's some technicalities associated with contracts and other intangible assets. I can't say for sure without doing some research and, frankly, it's not a topic that I'm terribly interested in at the moment, so I'm not going to do that kind of research.

Perhaps someone else has some better recollections without hitting the books too hard.

However, there is still one question that has been left unanswered. Is this an investment property you're considering? If it is for your own residence, then we're done since a 1031 exchange can't be done with personal use property.

--Peter
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Thanks for the reply, Peter. This porperty was purchased solely as an investment property so, although I'll have to do some research and ask my CPA's if this is something that counts or if this a special case that it won't count towards and taxes will apply to it, I plan to flip the proceeds from this into another peice of property.... maybe. :-)

-_- Alex -_-
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Alex,

You definitely need to get professional advice before you run out of time.

From what I remember the last time I did such a transaction the contract will not be something you can exchange. Maybe I am wrong on this.

If you complete on the property and then immediately resell you still could have problems as you have not really held the property for investment purposes. It starts to look like dealing rather then a buy and hold strategy.

Be careful about asking a CPA as this is not an area that they see a lot of (most CPAs that is). You might be better off getting an opinion from a tax attorney. The cost of the advice will be a lot less then the tax savings or the penalties for getting it wrong.

John
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