FAQs
Are you ready to start an exchange today?
FAQs
Contact Gibraltar 1031 Exchange anytime to start your 1031 Exchange. We have to get involved in your exchange prior to the close of the relinquished property. Ideally you call us even before you list your property for sale in order to properly set up the process and ensure a smooth exchange.
Unfortunately, yes. You must initiate a 1031 Exchange prior to the close of escrow of the property you are selling.
Qualified Intermediary is a neutral, third-party that facilitates the 1031 Exchange. Also sometimes referred to as an Accommodator, QI, or Facilitator. In most circumstances, the use of a Qualified Intermediary is required to successfully complete a 1031 tax-deferred Exchange.
A person is a disqualified person if at the time of the exchange:
- They act as an agent of the taxpayer.
- They are the spouse, kid, grandkid, parent, or sibling of the taxpayer
- Partnership and >10% interest partner
- Corporation and >10% shareholders
- Trustees/Grantors and Trust Beneficiaries
One who has acted as the taxpayer’s employee, attorney, accountant, investment banker, or broker, or real estate agent or broker within a two-year period ending on the date of the transfer of the first relinquished property. It also includes a person or entity related to the agent.
A 1031 tax-deferred Exchange, also known as a “like-kind” Exchange, is the exchange of real estate, held for investment, rental or used in trade or business, for other real estate purchased with the intent to be used for investment, rental, or used in trade or business. A successful completion of a 1031 Exchange allows investors to defer payment of Federal capital gains taxes, state ordinary income taxes and depreciation recapture otherwise realized from the sale of investment property.
Boot is any cash, debt relief or non-like kind property received by the taxpayer during an active 1031 Exchange. There is cash boot, mortgage boot, and personal property boot – all of which are taxable.
If you decide to purchase for less or pull-out boot in the exchange process, a partial 1031 Exchange is still an option. Whatever cash/equity is not reinvested will be considered boot, and liable for taxes.
A downleg is the relinquished property(s), or property the taxpayer sells, in a 1031 Exchange.
An Upleg refers to the replacement property(s) in a 1031 Exchange.
It is a means, defined by the Internal Revenue Code, to shield a taxpayer from actually or constructively receiving the funds during an active 1031 Exchange. A Qualified Intermediary is the most common and dependable form of Safe Harbor.
The potential access or control over sales proceeds. If the taxpayer has the ability to direct the funds to themselves or used to their benefit then they have constructive receipt of the funds.
No, you cannot have constructive receipt of your exchange funds without being taxed. You must use a neutral third party, Qualified Intermediary, to safely hold the funds during the exchange process.
The specific time period an investor must hold a property to qualify for a 1031 Exchange is left vague by the Internal Revenue Code. The code states that the property must be held for rental, investment, income, or be used in trade or business. In order to avoid any ambiguity in the tax code, its is advised that the taxpayer hold for an extended period. Many tax advisors recommend holding the property for at least two tax returns, which generally means more than 12-24 months. Again, the IRS has left this time period ambiguous. Holding the property for less than 12-24 months does not automatically mean it would not qualify. It is important to understand that the burden of proof lies on the taxpayer to “prove” their intent to hold. Gibraltar 1031 Exchange always recommends consulting with a tax advisor in regards to the property intended for use in an exchange.
The 121 Exclusion (Homeowner’s Exclusion) can be combined with a 1031 tax deferred exchange. If the taxpayer lived in a property 2 of the last 5 years as their primary residence, has since moved out and held it for investment purposes – aka rented it out- since moving out, you might qualify for this special combination. This scenario could be heavily scrutinized by the IRS, so it is important to document the process well and consult with your tax advisor. Please call GB 1031 anytime with questions about potentially combining a 121 Exclusion and a 1031 Exchange.
Depending on the situation, you might qualify to combine a 121 Exclusion and a 1031 Exchange OR to do a partial 1031 Exchange. The taxpayer might be able to combine a 121 Exclusion on the portion you lived in and performing a 1031 Exchange on the portion you rented out – held for investment purposes or for business use. Alternatively, the taxpayer could do a partial 1031 Exchange on the portion of the property not used for personal use, but instead held for investment or business purposes.
YES! Nothing is more important to Gibraltar 1031 Exchange than our client’s security. As veteran practitioners of the real estate and financial industry, we have taken exceptional measures in securing our clients assets and Non-Public Information (NPI) with state of the art cyber protection along with stringent wire remittal processes. Gibraltar 1031 maintains rigorous financial controls, with multi-level safety and security measures well above and beyond industry standards.
Yes, however timing and intent are key, and may be questioned. Check with your tax advisor before refinancing.
Seller Carry Back notes may be included or excluded from a taxpayer’s 1031 Exchange. Either option has various tax consequences. It is important to consult with your tax advisor if you are considering utilizing this type of financing with your 1031 Exchange.
Internal Revenue Code §1031 is a federal tax code. You can perform a 1031 Exchange between states anywhere in the US. Please note that some states have local tax rules that vary from state to state that can affect the 1031 Exchange rules for that state.
There are a few tax forms that might be used to report the 1031 Exchange. Form 8824, Like-Kind Exchanges: This is the primary form used to report a 1031 Exchange to the IRS. It includes details about the relinquished property (the property being sold), the replacement property (the property being purchased), and the exchange timeline.
Additional tax forms could be required depending on your specific circumstances. It is important to consult with your tax advisor to determine the exact tax forms needed.
Unfortunately, unless the government issues an extension due to a federally or state declared natural disaster or some extenuating circumstances in the area, there are absolutely no extensions on the 1031 Exchange timeline. The IRS strictly holds the exchange timelines.
Some states in the US have varying community property rules. In general, an important way this could affect the 1031 Exchange is in regards to how the taxpayer holds title. Since in a 1031 Exchange, the same tax entity that sells must be the same tax entity that purchases. With that in mind, if the taxpayer lives in a non-community state – such as Florida– than the taxpayer may not be able to remove or add their spouse mid-exchange.
Your qualified intermediary
