How
Do I Start a
1031 Exchange
Step 1
Contact Bankers Escrow Corp. immediately to begin the proper 1031
documentation, instructions and coordination of all parties to the
sale, including your real estate agent, title company, lawyer or
closing agent.
Step 2
Always discuss your 1031 Exchange with your tax advisor. Call Bankers
Escrow for sample 1031 assignment language needed in your real estate
contract.
Step 3
Identify the replacement property(s) within 45 days of the closing
of the relinquished property. Earnest money can be taken from your
1031 proceeds held for you by Bankers Escrow Corp.
Step 4
The acquisition of your replacement property must be completed within
180 days of the closing of the relinquished property.
Need More
1031 Exchange Information?
Call us at 800-571-6595 or
303-986-4848
Email us at
request@bankersescrow.com
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New 5-Year Rule!
Limits For a 1031Exchange
Involving a Principal Residence
By
Mary Lou Schwab CPA
Effective October 22, 2004 new tax legislation was signed into
law creating changes to the primary home exclusion and tax deferred
exchange sections of the tax code. This provision will affect
those taxpayers who have completed a 1031 exchange by purchasing
a rental house as replacement property and later converts the
rental house to their primary residence. In order to utilize the
primary resident exclusion on the converted rental house, the
taxpayer is now required to own the rental property for five years
and live in it for a minimum of two years as their principal residence.
The principal residence exclusion of Section 121 allows a taxpayer
to exclude the gain on the sale of their primary residence. The
total amount of gain that can be excluded is up to $250,000 if
the taxpayer is single or up to $500,000 if the taxpayers are
married filing jointly. The taxpayers are also required to live
in the property as their primary residence for two out of the
last five years to take full advantage of the exclusion.
Many taxpayers take advantage of utilizing a 1031 exchange to
purchase rental property that they later desire to convert into
a primary residence. Prior to the enactment of this legislation
taxpayers would complete a 1031 exchange purchasing replacement
rental property, rent it for a year and then move into it as a
primary residence for a period of two years. Any taxpayer who
previously acquired their current residence through a tax deferred
exchange within the last three years will now have to wait at
least another two years before selling their home and excluding
the gain.
This new tax legislation will require that the taxpayer actually
live in the converted rental property for two years and own it
for a total of five years. Substantial tax saving still exists
for taxpayers who consider this strategy. It is far better to
have a tax gain excluded rather than deferred!
Remember that under this new provision, a taxpayer who completes
a 1031 exchange and later moves into the replacement 1031 property
as their primary residence will not be able to exclude the gain
under the principal residence exclusion rules unless the sale
occurs at least five years from the date of its acquisition. Check
your acquisition dates carefully to make sure you meet the two-year
principal residence requirement!
©2004 Bankers Escrow Corp. Mary Lou Schwab
CPA is Vice President of Bankers Escrow Corporation and oversees
the 1031 Exchange Division. She has over 22 years experience in
real estate taxation. For questions on 1031 exchanges call 303-986-4848
or 800-571-6595. Bankers Escrow Corporation provides qualified
intermediary services for all types of exchanges including simple
deferred, reverse, construction, leasehold interest and business
property exchanges.
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