Like kind exchanges

[Marie]

I've had several calls on like kind exchanges. I need some help, haven't been able to find a QI who knows exactly what to do. Does anyone have some good resource material I could access?

[jainen]

>>haven't been able to find a QI who knows exactly what to do<<

"Exactly" is a very important word for Section 1031. Any real estate broker who handles commercial listings should be able to refer you, even if you are asking about personal property.

[Marie]

I talked to the title co and they can be the QI. They can hold the money and tranfer titles and I can help identify the properties. The exchange will take place in the first 45 days. Does there still need to be a written identification? Also I need some resource on buildings being exchanged and how the depreciation is recaptured or deferred and the new buildings on the farm.

[jainen]

>>written identification<<

You don't need written identification IF -- and ONLY if -- you complete the exchange within 45 days. Another way of saying the same thing is, you ALWAYS need written identification! Someday some deal might close on time, but don't bet that it will be yours. Talk to your intermediary, and make sure they are eager to completely document everything in detail. Also make sure they can answer this question without looking it up. A few other things to ask them include what they are going to do with the money they are holding. There should be some kind of bond or warranty that you get it back if they go out of business. I'm not being sarcastic in this post.

As for the tax implications, expect a rough ride. The first thing to remember is to ignore all mortgages. (In the extremely rare instance that the new owner ASSUMES the mortgage, ask for more advice. That means the SAME loan is transferred, not that the lender reissues the paper.) 1031 doesn't care whether property is paid for with cash or debt, so ignore all mortgages.

There are two ways to carry over the basis. One is to ignore the carryover and start everything new at FMV. It is allowed because it usually means a longer recovery period. It'svery common especially with equipment and vehicles. The other way is to set up TWO new assets, the carryover basis continuing on the old schedule and a new schedule for whatever new money (or mortgage value) was added. Of course, there is always more than one new asset. There is land, different buildings, irrigation and other development, and maybe furnishings or machinery. You have to allocate the total carryover basis among all the new assets according to percentage of total FMV. Do not try to match building for building and land for land, it's all real estate so the land basis will be distributed to ALL the new assets in the same way as building basis. Except for personal property, which unless you can match the narrow categories is going to mean boot given or taken.

With section 1031, NEVER use a computer. Print out blank worksheets and forms and do everything by HAND. Once you got it right, wait a few more days and then try to copy it into the computer.