1031 exhanges

Sure have your Acct designate it as her 'primary'. Keep bills, records, ESP. Voting registration on new place. Closings will have to be done thru a designated 1031exchange Corp. Simple as pie really.
One of the great loopholes of our tax system. Must weigh against deflating bubble..... Sell all, pay taxes and buy twice as much in 4 years.... Ummmmmmm high class problems.

Step 1: proceed immediately to an attorney/cpa/1031 intermediary

or

Step 2: read http://www.irs.gov/newsroom/article/0,,id=179801,00.html. pay particular attention to the time limits - identify prop's within 45 and consummate the exchange within 180. 6 months is a pretty duanting time line for 4 condos or 1 b-stone and 3 condos in NYC.
Step 3: understand that a 1031 exchange is a deferral not an exclusion unless you convert the 1031's into your princpals over time AFTER showing that you have the intent to hold the 1031's as investment prop.'s. also generally, the 1031's will have lower basises than if they were purchased outside fo the 1031 context. the asset's depreciable life (and eventual deduction recapture) is thus affected.
Step 4: and read http://www.irs.gov/publications/p523/ar02.html to understand the interplay between 1031 and 121, the primary concern fo which is converting 1031's into princpals. generally, after showing you intended the 1031's as investment's, conevrting each to a principal requires living in the subject prop for 2 years.
Step 5: proceed immediately to attorney/cpa/1031 company

Thank you CondoPresident and w67th.

My friend is aware that for a 1031 exchange that she must have "ALL" the properties be in contract within 45 days of selling her investment property (and complete closing within 60 days) to avoid severe tax implications.

That is why she was looking into new sponsor condos where several units can easily be bought and put into contract and closing within the guideline timeframe.

She is also aware that in order to be eligible for the $250,000 or $500,000 tax savings with selling a primary residence, one must live in that primary residence for 2 years.

The dilemma is:

1) converting the "single" investment property into 3 or 4 properties via 1031 exchange to avoid taxes and then to perhaps "pull out" one of these properties for her personal use as primary residence. What is the tax implications for this transaction?

More importantly:

2) Later down the road (eg: after having lived in this "pulled out" property for 2 or more years later)...the "BIG" question would be????

??? Can she then sell that "previous investment property" (that she has now used as her primary residence for more than 2 years)....be eligible....for the $250,000 tax saving with selling a primary residence?

it's 45/180...not 45/60.

and your confusing the term like-kind...like kind doesn't mean a one-for-one trasnaction. you can convert one valuable property for multiple less-valuable prop.'s...the "like" is in the value.

and like I said...she's going to have to show that she INTENDED all 1031's as investment prop. generally, holding all a year or more as an investment prop. should clear this hurdle, which measn she'll have to rent....after that, she shoudl be able to convert whatever prop she wants into a principal residence (by living in it for more than two years) thereby taking advantage of the 121 exclusion.

but again, steer very far away from the board for any advice other than information with which to approach the appropriate professional.

swim, I believe the properties need to be IDENTIFIED within 45 days of selling the primary residence and CLOSINGS must occur within 6 MONTHS.

Thank you so much for the info. It is most enlightening. Of course, I did advise her to discuss everything with a professional accountant. I certainly don't want to lose a friend with misinformation...and...I certainly am no specialist in this area.

However, CondoPresident...you seem extremely knowledgeable...so may I please ask:

After she:

1) Does the 1031 exchange for like-like from one single valuable investment to 3 or 4 less valuable properties

3) Picks one of the 3 or 4 properties to live in as primary residence.

4) Thus, basically "pulls out" one of the properties (from the 3 or 4) for personal primary residence use. Therefore changing that "one" particular property from investment to personal property.

Will it affect the status of the remaining investment properties?
What are the tax implications/liabilities?

Any recommendations on who would be good to seek to make such a transaction?

She appreciates any information from anyone about the tax implications.

Referral to any specialist or companies that do this type of transfers would be most helpful.

2) Showed "intent" by holding all the investment properties for one or two years while renting in Manhattan

Oops computer not working well..... number 2) should be listed under 1)

Anyway, I really do appreciate all the responses to my friend's query.

unless she lives any of the propoerties for at least two years, none of them can be convereted from investment to personal.

a discussion of HER time frames and living desires needs to happen to see what type of 1031 she's best suited for.

I can't reach her right now. But, a bunch of us had dinner with varying opinions.

She wants to liquidate a portion but like everyone else would like to minimize tax liabilites. She no longer works and this is basically her nest egg/retirement fund. This single property has appreciated over the 2 or 3 decades of ownership. However, my friend wants to do a 1031 exchange to delay paying taxes....but she also wants to liquidate a portion to move to Manhattan.

She wants to sell now because:

1) The Bush tax laws were extended for 2 years so capital gains would remain 15% but if you wait, it will be 20%.
2) Didn't the Medicare Surcharge Tax get passed resulting in and extra 3.8% taxation...to begin 2013?

Question is can she exchange this one expensive property to 3 or 4 smaller and less expensive properties....keeping in mind that the goal is:

1) picking to live in one property while keeping the others for rent? The rent would be her only income stream
2) minimizing taxation liabilities

I think she needs a tax/real estate lawyer/accountant....and I told her so...but any information from this forum would also be most appreciated.

she's smart to sell now per the obama's capital gains rate increases...but don't confuse the 3.8% hike as a blanket hike. it applies only to those making over north of 200 dpeending upon couple/single status.

and yes she can trade 1 for 3 or 4...and i was a little misleading before to state that that can be blanketly done. in fact, there are rules per the amount of replacement prop.'s and their values...but the general gist is that she can replace the propoerty with any number of prop.'s as long as the replacement prop.'s value(s) total 95% of the reliquishing prop.'s value.

i could assist your friend in this transaction, but i dare not subject my email address to the wolves on this board.

she could reliquinsh the ropoerty with replacement property valuing 200% of the value of the reliquishing property via financing if she wanted....why simply do a cash on cash when you can lever up the projected return a bit (with cheap money no less).

Dear CondoPresident,

You are way too funny. Do you have any other useful links/articles on such a transaction?

I think my friend is away for the holidays but I will ask her about consulting you since you seem very knowledgeable on this topic. Are you a lawyer or accountant??....Because I think paying you for your services would be to her advantage.

am an attorney.

there's a lot on 1031's. google the term and a lot will come up. consult the non wacky-looking sites. maybe even call a 1031 intermediary company to ask around a bit. but always back up info with IRS pub.'s and opinions at irs.gov (the best layperson source for tax code interpretation). i think her type of transaction is fairly typical in the 1031 world. where she may want to drill down further is whether financing makes sense as long as the cash flow + her other income can support it. having a large sum of cash (via a propoerty) which enables one to purchase additional investment properties in a low vacacny environment (NYC) at depressed prices and with VERY historically cheap financing is a recipe for long term financial success.

CondoPresident:

Lawyer huh? No wonder you know so, so much. Thank you for answering my friend's inquiry. It was very nice of you.

However, I believe that she will not be able to lever up the projected return because I believe that she still has a mortgage with that one single "expensive" investment property. So won't doing a 1031 exchange on a property that still carries a mortgage be difficult or more complicated? Won't banks refuse her a larger mortgage. Moreover, won't banks make it more difficult for her to do a 1031 exchange because of her remaining mortgage amount to that one single expensive property that she is exchanging (even thought that one property appreciated so much with time over 20 or 30 years)

Also, did the 3.8% Medicare surcharge tax to take place start 2013 pass? If so:

1) does this 3.8% tax apply to earned income? or capital gains? or both
2) and you comment about making less than $200,000....do you pay the 3.8% tax if you have make more than $200,000 "earned income" ..or...do you pay if you make more than $200,000 from rent or capital gains.

I heard that rent is treated as regular earned income vs selling a property where the difference is treated as capital gains as long as you owned the property for more than 2 year.

Of course, I may have gotten the above all wrong since I am no expert on the topic. Please correct me if any of the above is not correct/true.

Thanks