1031 exchange

[mhcpa1964]

Client owns business property that he's planning to sell and wants to do a like kind exchange. He has already identified the replace t property. He will use a QI.

Closing on the replacement property will be before the closing of the selling property.

I believe it's called a reverse exchange. Any pointers to share?

Thanks for any input.

[ATSMAN]

I have never done where the replacement property was closed before the sale of the 1031 property. There is the 45 and 180 day rule. But I think in a reverse situation it probably will hold true also. Check the regs, I am just going off the top of my head.

[mhcpa1964]

Yes those parameters still hold true. The Taxbook is really helpful.

I see a potential disadvantage that regards depreciation. The replacement takes a carry over basis in the property sold, which at 12/31/20 was $30,295. I'll check with the client for details about the replacement property, but in running some assumptions I can see he's going to lose 9 years of depreciation and at least $700 per year of depreciation. (It's not much and I'll fine tune the depr amount once I know more.)

If he makes the 1031 election now can it be revoked later if we find it's not financially worth it?

[ATSMAN]

It is sort of not completing the 1031 exchange due to some technicality. As long as the tax due is paid (with interest if applicable) I think it should be ok. I never encountered such a situation in real life. The few 1031 exchanges I was involved in were straight up and were completed as planned.

[mhcpa1964]

Thank you Atsman. It's my first. I, and the client, like to plan ahead as much as possible. Enjoy the rest of your weekend.