Like kind situation

[JenMO]

Father owns 40 acres at a 10,000 cost. father decides to buy another 100 acres for 50,000 (from someone else). he borrows from the bank, has a note, then sells on a contract for deed the prievious 40 acres to a son at the cost per acre of the new 100 acres. (500 per acre).Son's cost of 40 acres would be 20,000, dad's cost is $10,000 The son is now making payments on the father's note at the bank and paying for his 40 acres that way - not directly to the father, but on the father's note for the 100 acres (a $50,000 note). The father still owns the 100 acres, but has exchanged the 40 acres he sold the son for the 100 acres he purchased. Could this be a like kind exchange of the father's previous 40 acres (cost of 10,000) to purchase the 100 acres at a cost of $50,000. All was done in house at the bank, the only one who received money was the seller of the 100 acres.
I'm not sure I've written correctly, I know what was done. There was only a written agreement between the son and father, and arranged at the bank. Can it work?

[JenMO]

There is a written contract between father and son on the transaction. Don't know if bank is a qualified intermetiator or can be?

[Burke]

From the details in your post, it appears that is what they were trying to do. There should have been a HUD-1 or other documentation from the bank. Do you have it? That would show whether or not it was handled correctly. As long as both properties can be considered investment property (not for personal use) it will qualify for 1031 treatment. The related party rules would apply, in that both parties must retain the properties for a minimum of 2 years. There are some exceptions, like death for instance, or involuntary conversion.

[JenMO]

There is no hud statement, just a written agreement between father and son. I'm trying to determine if the bank can be a qualified intermediator.
Do they know if they are, or how do i know?

[Gary2]

There is no hud statement, just a written agreement between father and son. I'm trying to determine if the bank can be a qualified intermediator.
Do they know if they are, or how do i know?

It strikes me that the question isn't whether they can be but were they. Did they actually hold title to the properties?

[Burke]

There is no hud statement, just a written agreement between father and son. I'm trying to determine if the bank can be a qualified intermediator.
Do they know if they are, or how do i know?

An agreement between only the father and the son does not qualify. There must be a signed Exchange Agreement between the exchanger (father) and the Qualified Intermediary satisfying all the rules for assignment of the rights of the property to the QI, etc. who essentially becomes the "seller." The QI does not need to have the title transferred to him, but is allowed to do "direct deeding" to the buyer. See Rev Proc 90-34, 1990-16 C.B. 552 Treas Reg 1.1031(k)-1(g)(4)(v). Check to see if such an exchange agreement existed. Whoever handled this at the bank should know. IRC provides for certain "safe harbors" in the Exchange Agreement which will meet their requirements for a tax-deferred exchange.

[JenMO]

Thanks, there was no signed exchange agreement and i've talked to the banker and could tell he wasn't comfortable with the questions about being a qi. We are going to do a installment sale.

[Burke]

That's what I thought. It's still a related party transaction as far as future sale regs are concerned. And the fact that the son is paying the father's loan off directly is really immaterial. It's still an installment sale with proceeds taxable to the father (interest and gain on the sale.)