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My motherhas been informed by mortgage broker that she can

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Hi Again. My motherhas been...
Hi Again. My motherhas been informed by mortgage broker that she can purchase property in Florida now as a second home (lower down payment and interest), then ONCE she sells her current investment home, she can "modify loan" with bank for a 300 fee to pay down mortgage and change loan to a investment property from the second home loan. Will this meet IRS requirements for reinvesting capital gains earned?
Submitted: 1 year ago.Category: Tax
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8/16/2016
Tax Professional: Richard, Tax Attorney replied 1 year ago
Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 56,016
Experience: 29 years of experience as a tax, real estate, and business attorney.
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Hi there. Thanks for requesting me. I'm in a closing all afternoon and want you to be able to receive a timely response rather than having to wait. Given this, I am going to opt out so another expert can timely provide you the information you seek. Please do not respond to this post as it will only slow the process of such an expert picking up your question. Take care.

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Tax Professional: Robin D., Senior Tax Advisor 4 replied 1 year ago
Robin D.
Robin D., Senior Tax Advisor 4
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Satisfied Customers: 16,211
Experience: 15years with H & R Block. Divisional leader, Instructor
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Hello

What your mother wishes to do would not protect her form tax on the sell of the property she now owns.

The sell of the investment property would need to be under a 1031 exchange.

IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.

In a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property.

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Customer reply replied 1 year ago
34;In a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property."ok so that is a no go..the re modification plan. so she needs to buy new property as an investment property upfront. then what? Please tell us exactly what needs to be doen to protect her.
Tax Professional: Robin D., Senior Tax Advisor 4 replied 1 year ago

She would need to work through an intermediary, they receive the payment on the sell of the property and they act on her behalf.

She designates the replacement property and it must be another investment property it cannot be a second home.

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Customer reply replied 1 year ago
ok help me step by step.she buys new property...as an investment home.she has loan..WHEN DOES intermediary get involved? is there a fee for that?
Customer reply replied 1 year ago
this is BEFORE she sells old property to be clear.
Tax Professional: Robin D., Senior Tax Advisor 4 replied 1 year ago

They will most likely charge a fee. Most people use an attorney as their intermediary.

She should choose one now.

There are time frames that would need to be met if she wants to use this.

Before closing of the first property, the Exchangor has 45 calendar days to identify to either the intermediatry or the closing entity the addresses of the potential replacement properties. In a reverse exchange where either the replacement or relinquished property is parked, the Exchangor has 45 days to submit a final list of properties for sale or purchase.

She needs to have her intermediary in place now to hold her replacement property and the for the sell of the other.

Here are the basics of the 1031 so you can get familiar with the requirements

https://apiexchange.com/what-is-a-1031-exchange/

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Tax Professional: Robin D., Senior Tax Advisor 4 replied 1 year ago

If your mother were to purchase a property prior to selling the other outside the proper 1031 arrangement then she cannot use that to defer the sell.

The intermediary could hod the new property then when she sells the old the exchange could happen.

This is more complicated then buying and selling on one's own.

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Customer reply replied 1 year ago
hold property? does that mean we can;t access it to modify it? live in it? does the old property have to be sold within a certain time frame of purchase of new property? what if it takes 6 months to sell old investment property?
Tax Professional: Robin D., Senior Tax Advisor 4 replied 1 year ago

In a reverse 1031 exchange, the Exchangor cannot hold title to both properties at the same time, so an Exchange Accommodator Titleholder (EAT) is created to take title or park either the old or new property.

The EAT can be single member limited liability company (smllc) created for the purpose of holding the property for the duration of the 1031 reverse exchange. The smllc is never reused or simultaneously holds property for another exchange.

Once the old property sells, the equity is returned to the Exchangor for the cash contribution to the new property or to pay down the new property debt. EATs are also used while the new property receives improvements. If it takes 6 months then that is allowed.

Your mother cannot buy a property then sell another to pay off the new and not pay tax on the sell.

That is not within the IRS rules for deferring gain.

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Tax Professional: Robin D., Senior Tax Advisor 4 replied 1 year ago

There are real estate attorneys that specialize in this sort of transaction.

I hope this has been helpful.

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Customer reply replied 1 year ago
I contacted the link above. they said it would cost $7500 to do reverse exchange
settikgn up llc to buy new home etc.
Tax Professional: Robin D., Senior Tax Advisor 4 replied 1 year ago

Doing a reverse is the most complex. Selling first then replacing is the easier method.

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