Real Estate Update in Palo Alto & Los Altos

Why is a Qualified Intermediary needed?
Since the exchange ends the moment the investor or business owner has taken actual or constructive receipt of the proceeds from the sale of the relinquished property, using a Qualified Intermediary is a way to safeguard against this happening. The Qualified Intermediary holds the proceeds from the sale in a secure escrow account until they are needed to acquire the replacement property. If the investor or business owner takes receipt of the funds, it is considered a taxable event.

What if the investor or business owner can’t identify any replacement properties within the 45 days, or close on any replacement properties before the end of the exchange period?
Unfortunately, there are no extensions available, except in rare cases. If the investor or business owner does not meet the time limits, the exchange will fail and the investor or business owner will have to pay any taxes that arise on the gain from the sale of the relinquished property.

Can someone take cash out of a 1031 exchange?
Cash cannot be taken out of an exchange without creating a taxable event. If the investor or business owner elects to take cash out of the sale proceeds, this is called “boot” and is taxable. In order to avoid taxable boot, the investor or business owner can opt to refinance after the exchange transaction is completed.

When is the best time to notify the related parties about the intent to complete a 1031 exchange?
The investor or business owner should wait until all terms of the agreement of sale have been agreed upon before informing the related parties about the intent to complete a 1031 exchange. One would like the cooperation of the other parties, but it is not required as long as they have been notified in writing.

Can someone close on the replacement property before they have a buyer for the relinquished property?
Yes. This type of exchange is known as a reverse exchange. To make this exchange work, someone other than the investor or business owner (usually the Qualified Intermediary) must take title to the property until the exchanger is ready to sell the relinquished property to a buyer.