Like Kind Exchange or 1031 Exchange?

[globug666]

I sold a rental property in Jan of 2021 and in Feb of 2021 I purchased a new rental in a different state.  Can I treat this as a 1031 exchange or like kind exchange on my taxes, even though I did not have an intermediary handle my proceeds from the first sale?(according to IRS, I have to have).  I read IRS guidelines, it seems to be very specific on the 1031 rules.  I am confused.  It appears on many posts here I can still defer the gain regardless if I used an intermediary for the sale. The proceeds from my sale came directly to me, which I held in the bank to use on my new rental property.  How can I treat this without paying the gain on the sale of my property sold in Jan>

[Anonymous_ · Accepted solution]

There are rules for Section 1031 exchanges. 

Generally, you cannot be in constructive or actual receipt of the proceeds of the sale of your property.

See https://www.irs.gov/pub/irs-news/fs-08-18.pdf

What are the different structures of a Section 1031 Exchange?

To accomplish a Section 1031 exchange, there must be an exchange of properties. The simplest
type of Section 1031 exchange is a simultaneous swap of one property for another.

Deferred exchanges are more complex but allow flexibility. They allow you to dispose of property
and subsequently acquire one or more other like-kind replacement properties.
To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case
of a taxpayer simply selling one property and using the proceeds to purchase another property
(which is a taxable transaction).

[globug666]

So because I received the proceeds directly I cannot us a 1031 exchange?  Is that correct? 

Here is the timeline:

1. Sold investment property on Jan 15, 2021 and received the proceeds directly.
2. Bought investment property on Feb 25, 2021 that was significantly more than the one sold and I had a larger mortgage.
3. All proceeds after paying off the investment property was used to put down on my new investment property which was $41,000.

I guess what I am asking, does this disqualify me from doing the like kind exchange on my 2021 taxes?

[Anonymous_]

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@globug666 wrote:

So because I received the proceeds directly I cannot us a 1031 exchange?  Is that correct? 

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Yes, you should have used a qualified intermediary for this transaction.

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@globug666 wrote:

I guess what I am asking, does this disqualify me from doing the like kind exchange on my 2021 taxes?

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Yes, your transaction, as stated, does not qualify for Section 1031 (like-kind exchange) treatment.

[globug666]

So I pay on the entire gain?  I was hoping there was something else that I could do?

[Anonymous_ · Accepted solution]

Yes, you would have tax liability on the entire gain (at least you must report the entire gain).

There is really nothing you can do, at this point, after the fact.

[globug666]

Okay I understand that. Thank you!

One more question.  I had a loss on the new rental property that I purchased, but because of my income, I cannot take them,(I am over the $150,000 threshold) however, from my understanding they are carried forward.  Is it possible to use that loss in 2021(passive loss from my new residential rental property) to offset my gain on the sale of the property that I sold in 2021?

[Anonymous_]

No. The passive loss is going to be suspended since a passive loss can only be used to offset passive income (which is not the case with a gain on the sale of rental real estate).

[Mike9241]

The proceeds from my sale came directly to me, which I held in the bank to use on my new rental property.  How can I treat this without paying the gain on the sale of my property sold in Jan.

this statement indicates that you did not comply with one of the rules for section 1031 treatment. 1031 requires that you do not get direct control of the sales proceeds. you say you did so that rules out using 1031. in the future when selling real property and want to use 1031 contact a real estate lawyer so it can be done properly. 

[Anonymous_]

You need to use the proper link to find threads that have unanswered posts @Mike9241.

The latest post in this thread is 6 months old and the questions have already been answered.

[tpwatson50]

Once you have taken possession of the proceeds from the sale of the former property, you can no longer do a like kind exchange transaction.  You must use a qualified intermediary to handle the funds from the point of sale to the point of purchase of the new property.

[Anonymous_]

@tpwatson50 Did you bother to read the post directly above your post? You should look at the dates before you post an answer.