Please Help With Complicated 1031 Exchange!
here is my problem.
i recently sold a building under a 1031. i identified two properties to purchase, building 1 and building 2. i have closed on building 1 already with part of the funds. the rest of the funds i planned on using for building 2, but just today the deal fell through due to a foundation issue. i don't want to have the money sent back to me, and the 180 days is just about up. can i refi building one, which i already own and bought with part of the 1031 account, and put the rest of the account money into the refi of building 1? i already meet the requirement for like kind exchange and an exchange of greater value in my purchase of building 1.
thanks so much for your help! :-?
Hopefully Bill Exeter will respond to your interesting post. I think the only issue is that the property has already closed. If I understand you correctly, you want to put more money into property 1 so you will have less (or no) "boot" that is subject to capital gains. Have you asked your Qualified Intermediary about this?
yes, i want to put the rest of the money in property one. it has already closed, and i want to refi it or even just pay down the mortgage to avoid any taxes on the "boot"
My gut feeling is that there should be nothing wrong doing what you want. If you use the money in your 1031 account and just pay down the loan, you could refi at any time to reduce your monthly payment. Since you are not pulling out any money this seems OK. Bill Exeter will, hopefully, see these posts and respond. He has an exchange company and would likely be able to give you a definitive answer. I would think that your Intermediary would have an opinion as well. In my previous post I asked you what that opinion is.
my understanding is if it is closed then the answer is no you can't use the money even with a refi. I would call the 1031 company.
I agree with KarenSilver on this one. You already own the building 1 -- it is already in your name. Applying exchange funds to pay down the mortgage after the settlement seems to be the same as having constructive receipt.
You are correct. You have already closed on the replacement property (#1), so it is too late to put additional funds in on this one. Using the funds left over to "payoff or paydown" the debt on the first property would not be an exchange of like kind property. And, it is too late to identify additional property since you are well past your 45 day identification period. However, the one thing that you can do is make sure that your qualified intermediary holds the funds until 2005. Section 1031 works in conjunction with Section 453 (installment sale treatment). The capital gain is recognized in the year that you receive the cash provided that your 180 day ends in the following year. So, even though you have a partially failed 1031 exchange you can at least defer the recognized capital gain into 2005 (assuming that makes sense for your own tax situation). If you have less income this year, you might want to make sure that you receive the cash this year instead.
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