1031 exchange bare land for rental property

[nwtaxlady]

Client had purchased 2 bare lots and sold them separately on 2/1/15 to two separate people.

Now they want to purchase a house and rent it out. If they identify it here soon. Would this work? Bare land (investment property) for a house to rent out.


Would only 1 lot qualify or both? There is a about an $35,000 gain on each lot.

I told them they would need a 1031 exchange facilitator.

[Roland Slugg]

2/1/2015 was over a year ago, so they are way too late to do an exchange now.

If you actually meant "2/1/2016," they still can not do a §1031 exchange if escrow has closed on those sales, and the sale proceeds were not sequestered into an exchange escrow with a QI. In order to qualify, the exchange has to be set up prior to COE.

[nwtaxlady]

yes, meant 2016

yes, just this year 2/1/2016. Oh that's right...they can't touch or receive the monies. So probably a no go.

But would the 2 lots qualify for a house to rent as investment property?

[Burke]

If you mean does improved property (with a rental house) meet the 1031 requirements for like-kind exchange to vacant land, or vice-versa, yes. However, as stated above it must be done as a qualified transaction within certain time frames, etc and cannot be done after the fact by a taxpayer who sells one property and then buys another on his own.

[nwtaxlady]

thanks

yes, I understand that. I told the client they need to call the title company and get a facilitator. Probably too late if they closed in February of this year since they have to have a escrow account set up for this and not touch/receive any money.

Thank you!