Posted by dewCO on November 14, 2001 at 22:49:59:
Thanks for the info Ron, but this guy is obviously way ahead of the curve on this one.
Who knows about 1033 exchanges? - Posted by Brian, WI
Posted by Brian, WI on November 14, 2001 at 17:20:27:
Can you help me!!!
A property I have will be “taken” by the city it’s in via Eminent Domain. This will happen by year end. I’ve been told this is now a situation where a “1033 exchange” comes in. The city is offering $160,000, I’ll be fighting for $230,000(a long story), but, when they “deposit” the $160,000 in the courts, I believe, they(the city) then owns the property, or so I’m told.
My question is what do I do with that money, the $160,000? Can I touch it, then if I do I’m I now taxed on the profit from the sale as in a 1031 exchange?
Who, in simple terms, can lay out how a 1033 works?
Thanks
Brian
Re: Who knows about 1033 exchanges? - Posted by Dave T
Posted by Dave T on November 14, 2001 at 23:17:16:
You did not specify how this property is being used.
If your principal residence, you first want to use the $250K ($500K MFJ) Section 121 exclusion rules. Only when the profit exceeds your capital gains exclusion, will you bring the Section 1033 rollover-of-gain rules into play.
Re: Who knows about 1033 exchanges? - Posted by Ronald * Starr
Posted by Ronald * Starr on November 14, 2001 at 22:07:43:
Brian--------
You have the correct code section. I did a 1033 exchange once. Some years ago, so my memory is a little hazy. You probably will want to consult with a CPA and an attorney because the amount of money involved. I am neither.
However, as I recall the section. You have 3 years in which to locate and purchase a replacement property. You may want to verify this, but I recall no restrictions on your taking the money and doing what you wish with it until you locate your replacement property. Any money not used to purchase replacement property is taxable.
I think you do not need an intermediary. If you use one, I don’t think there are any restrictions as there are in 1031 about using your own attorney or other professional. I think you don’t need to “identify” the property, you just buy it.
The section is pretty short, if I recall correctly.
Well, I looked it up on the internet easily.
Here is PART of the 1033 section, not the whole. You might want to read the whole thing yourself. It is not as short and simple as I recalled. The first part is the beginning, the second part deals specifically with real estate. Much of it deals with stock.
Sec. 1033. Involuntary conversions
(a) General rule
If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted -
(1) Conversion into similar property
Into property similar or related in service or use to the
property so converted, no gain shall be recognized.
(2) Conversion into money
Into money or into property not similar or related in service
or use to the converted property, the gain (if any) shall be
recognized except to the extent hereinafter provided in this
paragraph:
(A) Nonrecognition of gain
If the taxpayer during the period specified in subparagraph
(B), for the purpose of replacing the property so converted,
purchases other property similar or related in service or use
to the property so converted, or purchases stock in the
acquisition of control of a corporation owning such other
property, at the election of the taxpayer the gain shall be
recognized only to the extent that the amount realized upon
such conversion (regardless of whether such amount is received
in one or more taxable years) exceeds the cost of such other
property or such stock. Such election shall be made at such
time and in such manner as the Secretary may by regulations
prescribe. For purposes of this paragraph -
(i) no property or stock acquired before the disposition of
the converted property shall be considered to have been
acquired for the purpose of replacing such converted property
unless held by the taxpayer on the date of such disposition;
and
(ii) the taxpayer shall be considered to have purchased
property or stock only if, but for the provisions of
subsection (b) of this section, the unadjusted basis of such
property or stock would be its cost within the meaning of
section 1012.
(B) Period within which property must be replaced
The period referred to in subparagraph (A) shall be the
period beginning with the date of the disposition of the
converted property, or the earliest date of the threat or
imminence of requisition or condemnation of the converted
property, whichever is the earlier, and ending -
(i) 2 years after the close of the first taxable year in
which any part of the gain upon the conversion is realized,
or
(ii) subject to such terms and conditions as may be
specified by the Secretary, at the close of such later date
as the Secretary may designate on application by the
taxpayer. Such application shall be made at such time and in
such manner as the Secretary may by regulations prescribe.
(g) Condemnation of real property held for productive use in trade
or business or for investment
(1) Special rule
For purposes of subsection (a), if real property (not including
stock in trade or other property held primarily for sale) held
for productive use in trade or business or for investment is (as
the result of its seizure, requisition, or condemnation, or
threat or imminence thereof) compulsorily or involuntarily
converted, property of a like kind to be held either for
productive use in trade or business or for investment shall be
treated as property similar or related in service or use to the
property so converted.
(2) Limitations
Paragraph (1) shall not apply to the purchase of stock in the
acquisition of control of a corporation described in subsection
(a)(2)(A).
(3) Election to treat outdoor advertising displays as real
property
(A) In general
A taxpayer may elect, at such time and in such manner as the
Secretary may prescribe, to treat property which constitutes an
outdoor advertising display as real property for purposes of
this chapter. The election provided by this subparagraph may
not be made with respect to any property with respect to which
an election under section 179(a) (relating to election to
expense certain depreciable business assets) is in effect.
(B) Election
An election made under subparagraph (A) may not be revoked
without the consent of the Secretary.
(C) Outdoor advertising display
For purposes of this paragraph, the term ‘‘outdoor
advertising display’’ means a rigidly assembled sign, display,
or device permanently affixed to the ground or permanently
attached to a building or other inherently permanent structure
constituting, or used for the display of, a commercial or other
advertisement to the public.
(D) Character of replacement property
For purposes of this subsection, an interest in real property
purchased as replacement property for a compulsorily or
involuntarily converted outdoor advertising display defined in
subparagraph (C) (and treated by the taxpayer as real property)
shall be considered property of a like kind as the property
converted without regard to whether the taxpayer’s interest in
the replacement property is the same kind of interest the
taxpayer held in the converted property.
(4) Special rule
In the case of a compulsory or involuntary conversion described
in paragraph (1), subsection (a)(2)(B)(i) shall be applied by
substituting ‘‘3 years’’ for ‘‘2 years’’.
Good InvestingRon Starr***
Re: Who knows about 1033 exchanges? - Posted by Ronald * Starr
Posted by Ronald * Starr on November 14, 2001 at 21:49:46:
Dew CO----------
I like to see you helping people. But watch it. This one is different. This is not a situation for a 1031 exchange. This falls under the IRS code section 1033–replacement of property taken by condemnation, or something similar to that.
The rules are very different than for a 1031.
Good InvestingRon Starr***
Re: Who knows about 1033 exchanges? - Posted by Chris - Fl
Posted by Chris - Fl on November 14, 2001 at 21:15:24:
I am just about finished doing a 1031 Exchange. I used http://www.1031company.com/ as my 1031 mediator. They handled everything for us and charged $900 total bill. We are closing on 2 properties. Basically, all of your gains made in this property need to be rolled into a “like” investment property. Anything you put in your pocket you must pay capital gains on. You can choose anywhere from 1 - 4 properties. The stipulations are if you get 1 property it has to be more than the one you sold. If you buy more than 1 property the total combined values of the property can not be more than 2x what you just sold. There is not much to it but definately something you would not want to tackle without competent advisors who will answer any of the off the wall questions you might have with confidence and get you headed in the right direction.
Chris - Fl
1031 exchange - Posted by David Krulac
Posted by David Krulac on November 14, 2001 at 18:18:12:
if you are contesting the settlement amount how will you:
not what sale price you are exchanging?
and how will you comply with the 45 day identification requirement of the IRS?
This is not amateur hour, you need a good attorney not only for the 1031 exchange but also the emminet domain.
The $70,000 difference in your values would warrant the expenditure of legal fes IMHO.
David Krulac
It’s a1031 exchange… - Posted by dewCO
Posted by dewCO on November 14, 2001 at 17:34:12:
and you need to bone up now on what the rules are. I think there are posts on the legal forum as well as tons here at this site. Basically after you CLOSE (you’ll need to get that defined per your specific situation, it usually means the transfer of the deed, which I assume will still need to happen in your case) you have 45 days to lists I think it’s as many as 3 replacement properties, and then another 135 to close on your new purchase- total of 180 days from your closing. YOU can not touch the money, you need a qualified intermediary to hold the $$ and to set up the transfer paperwork, etc. You need to buy “like-kind” property which means investment property. All the proceeds need to be put into the new purchase(s) (It can be more than 1 property) and you need to purchse for an equal or higher amount than your “sale” price, etc, etc, there’s lots to know.
Re: Who knows about 1033 exchanges? - Posted by Brian, WI
Posted by Brian, WI on November 15, 2001 at 04:15:23:
Sorry about that, this is a rental property, a rooming house.
Thanks for your reply
Brian
Re: Who knows about 1033 exchanges? - Posted by Brian, WI
Posted by Brian, WI on November 15, 2001 at 04:16:59:
Ron,
Thank you so much for taking all that time to type this information, I appreciate that as I’m sure others who may need this info. sometime.
Brian
OPPS–Mispost–Please Ignore Above - Posted by Ronald * Starr
Posted by Ronald * Starr on November 14, 2001 at 22:18:46:
Opps.
Re: Who knows about 1033 exchanges? - Posted by Ronald * Starr
Posted by Ronald * Starr on November 14, 2001 at 21:53:54:
Chris–FL------
I like to see you helping people. And it is nice that you share your personal experience.
But watch it. This one is different. This is not a situation for a 1031 exchange. This falls under the IRS code section 1033–replacement of property taken by condemnation, or something similar to that.
The rules are very different than for a 1031.
Good InvestingRon Starr***
Re: 1031 exchange - Posted by Ronald * Starr
Posted by Ronald * Starr on November 14, 2001 at 22:21:04:
David Krulac----------
As I’m sure you know, I like to see you helping people. You do a lot of good.
But watch it. This one is different. This is not a situation for a 1031 exchange. This falls under the IRS code section 1033–replacement of property taken by condemnation, or something similar to that.
The rules are very different than for a 1031.
Good InvestingRon Starr***
Re: It’s a1031 exchange… - Posted by Ronald * Starr
Posted by Ronald * Starr on November 14, 2001 at 22:20:01:
Dew CO----------
I like to see you helping people. But watch it. This one is different. This is not a situation for a 1031 exchange. This falls under the IRS code section 1033–replacement of property taken by condemnation, or something similar to that.
The rules are very different than for a 1031.
Good InvestingRon Starr***
Re: Who knows about 1033 exchanges? - Posted by Ronald * Starr
Posted by Ronald * Starr on November 15, 2001 at 13:18:13:
Brian, WI------------
Thank you for your appreciation.
However, I would not want anybody to be under an illusion here. The IRS code stuff I just copied out of a website that had it and then pasted it into my post. I would not want to type all of that stuff. This internet is neat. I just put “internal revenue service code section 1033” into the search engine and there were several results. Opened one, and there it was.
This is an interesting section and could save a person a lot of taxes when it is needed. Fortunately, it is not needed very often.
Good Investing*Ron Starr
Re: Who knows about 1033 exchanges? - Posted by Chris - Fl
Posted by Chris - Fl on November 15, 2001 at 06:43:21:
Going back over and re-reading the origional post I must admit that you are right. Sorry for the oversight.