Discussion:1031 Exchange Motel Property for Land
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| Revision as of 00:17, 22 August 2006 Riley2 (Talk | contribs) (Hopefully, the c) ← Previous diff |
Revision as of 20:06, 30 August 2006 Mpfllc (Talk | contribs) (Thank you Riley) Next diff → |
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| {{ForumReplyPost|UserID=Riley2|Date=22 August 2006|Text=Hopefully, the client has already signed the 1031 agreement and is now in the identification stage.}} | {{ForumReplyPost|UserID=Riley2|Date=22 August 2006|Text=Hopefully, the client has already signed the 1031 agreement and is now in the identification stage.}} | ||
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| + | {{ForumReplyPost|UserID=Mpfllc|Date=30 August 2006|Text=Thank you Riley and Morrison for the responses. First if all the client did not sell and then decide to do a 1031. Proceeds were deposited with an intermediary and the land identified within the 45 day rule. Closing has already taken place on the land thus satisfying the 180 day rule at that point. Determined that the investor will simply purchase a % of the "S" Corporation. What concerns me now is that it could take more than the balance of 180 days to complete the construction of the new (1 or 2) new motels. The total construction cost will be equal to or greater than the sale price of the relinquished property and the debt will also be greater or same as the relinquished property. Provided construction exceeds the balance of 180 days, does he have a problem with the 1031? I am assuming "NO" provided proper documentation is kept. Thanks, MPF}} | ||
Revision as of 20:06, 30 August 2006
Discussion Forum Index --> Tax Questions --> 1031 Exchange Motel Property for Land
| 19 August 2006 | |
| Client has sold motel property and wishes to do a 1031 exchange. He has already identified land(two lots) that are commercial property, yet unimproved. The cost of the two lots are greater than the proceeds of the motel property sold. Client will build either one or two new motels on this land.
At some future point an individual will invest X dollars to purchase half of the interest in the "S" corporation owned by the client. Client presently is sole owner of the "S" Corporation. Proceeds of 1031 is $900K. Land cost is $1.1M. New shareholder will invest $550K (exactly one-half the cost of land), either to purchase 50% of the land or provide funds for construction. I am concerned that if the character of the new shareholder investment is deemed to be sale of part of the land, then capital gain on the transaction must be recongnized. If the investment is to purchase a 50% position in the "S" corporation, then no gain is recognized and the funds may be used for construction of one or both new motels. Will the character of the 1031 exchange be altered with investment by new shareholder or will this investment be deemed a "Cash out" by my client? It is my opinion that funds invested should be utilized for land improvements in the form of new income producing property, not the purchase of a 50% interest in the land. Balance of funds for construction should be sought from lending institutions. Appreciate any and all assistnace. MPF | |
| 19 August 2006 | |
| I see no problem with selling an undivided interest in the land to another investor if the property has been "held" for investment, trade, or business purpose for a sufficient length of time.
However, I get the sense that "some future point in time" is either this year or next year, in which case your client has a significant boot problem. | |
| 22 August 2006 | |
| Do I understand this correctly? Client has already sold motel property and now wants to do a 1031? Can you sell and then do a 1031 after the sale? | |
| 22 August 2006 | |
| Hopefully, the client has already signed the 1031 agreement and is now in the identification stage. | |
| 30 August 2006 | |
| Thank you Riley and Morrison for the responses. First if all the client did not sell and then decide to do a 1031. Proceeds were deposited with an intermediary and the land identified within the 45 day rule. Closing has already taken place on the land thus satisfying the 180 day rule at that point. Determined that the investor will simply purchase a % of the "S" Corporation. What concerns me now is that it could take more than the balance of 180 days to complete the construction of the new (1 or 2) new motels. The total construction cost will be equal to or greater than the sale price of the relinquished property and the debt will also be greater or same as the relinquished property. Provided construction exceeds the balance of 180 days, does he have a problem with the 1031? I am assuming "NO" provided proper documentation is kept. Thanks, MPF | |
