1031 Exchange A Contract To Purchase Property
I am told by a CPA 1031 expert that the following is possible in the State of Florida.
A contract to buy properpty is an equitable interest and treated like real estate for the purposes of a 1031 exchange.
The implications of this are as follows:
On January 1, 2003, Smith enters into a contract to purchase a building that will be completed in two years. January 1 is the effective date, the deal is signed and a ten percent deposit is put in escrow. The price agreed upon is $100,000 and $10,000 is put into escow
On January 2, 2004 Smith executes a contract ro sell (assign) his contract for $20,000. He can then 1031 his profits into another property and defer taxes using the normal intermediary 1031 procedures, etc.
I am also told Smith cannot
roll this profit into ANOTHER contract- it must be a property.
I am going to try this ( The actual numbers are quite large and the motivation to shield from taxes higher.)
Any one done this? Comments from 1031 experts apprectiated.
[addsig]
Sounds interesting, the only requirement that I am aware of is you have to identify your 1031 property within 45 days of the deposit of your cash.
I would say that if your CPA said it was a go, it's safe to move ahead.
[addsig]
Without commenting on the validity of the strategy, I am confused by your opening "I am told by a CPA 1031 expert that the following is possible in the State of Florida."
Section 1031 of the tax code is federal law and applies to the capital gains you are seeking to defer on your federal income tax return. Why is your 1031 CPA expert implying that this approach is only legal under Florida law?
Good question.
He told me that in Florida a contract is considered real estate. But you raise a very good question.
I will explore this further with him this week. This CPA is not my CPA but a firm trying to get my 1031 business.
I will call Monday and let you know what I find out.
[addsig]