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I am under contract to sell my primary residence and we are past their deposit going hard and they have signed off on the the inspection request so I am just waiting for a definite closing date to get a pod and car carrier scheduled. I don't want to do this too soon as I am liable for the place until closing. My realtor just informed me that they are purchasing under a 1031 which she briefly explained as an investment vehicle to keep from paying gains if they sell in the future.
Can this affect me as the seller in any way?
I know that the closing is contingent on them selling their current residence in another State and I gave them the right to extend the 2/15 closing to on or before 3/1, which I believe was a mistake.
How can they consider this purchase as an investment if they have no other residence? Or did they just lie and really have another home or homes? They can't rent it according to the CID bylaws so what type of investment will they declare? Maybe just to resell as I did but for other reasons such as my wife hated it?
Is this a common way to purchase, especially second homes, to keep from paying taxes?
Yes, they can purchase with a 1031 tax deferred exchange.
Just reading about them online it seems there are some conditions and the most important to me if I was doing it, would be they can't occupy it for more than two weeks a year. If it can't be rented or leased would they just be planning on leaving it empty 50 weeks a year for a resale investment?
I shouldn't really care as long as the check clears but am interested in their intentions, especially for my neighbors sake.
Just reading about them online it seems there are some conditions and the most important to me if I was doing it, would be they can't occupy it for more than two weeks a year. If it can't be rented or leased would they just be planning on leaving it empty 50 weeks a year for a resale investment?
I shouldn't really care as long as the check clears but am interested in their intentions, especially for my neighbors sake.
It is common for people to 1031 into a property that they plan to retire into. They have to "rent it" for a time frame, two years I think, then they can move into it as their primary residence. If you are in a tourist destination, then they will likely allow family and friends over for short stays to keep a watch over the property.
I am guessing that is what they are doing.
Doing a 1031 doesn't impact you as the seller other than waiting for the other home to close.
I am under contract to sell my primary residence and we are past their deposit going hard and they have signed off on the the inspection request so I am just waiting for a definite closing date to get a pod and car carrier scheduled. I don't want to do this too soon as I am liable for the place until closing. My realtor just informed me that they are purchasing under a 1031 which she briefly explained as an investment vehicle to keep from paying gains if they sell in the future.
Can this affect me as the seller in any way?
I know that the closing is contingent on them selling their current residence in another State and I gave them the right to extend the 2/15 closing to on or before 3/1, which I believe was a mistake.
How can they consider this purchase as an investment if they have no other residence? Or did they just lie and really have another home or homes? They can't rent it according to the CID bylaws so what type of investment will they declare? Maybe just to resell as I did but for other reasons such as my wife hated it?
Is this a common way to purchase, especially second homes, to keep from paying taxes?
A 1031 exchange is a swap of one real estate investment property for another real estate investment property, so I doubt that your purchaser is selling their primary residence. Besides, if they were selling their primary residence, they would likely have a significant exclusion from capital gains tax and wouldn't be concerned about a 1031 exchange--and would be ineligible anyway. Also, a 1031 exchange defers the capital gain on the property being sold (exchanged). It doesn't keep them from paying capital gains on the future sale--unless they do another 1031 exchange (again, between investment properties).
Your agent doesn't seem to know the particulars of the Buyer's 1031 plans. That's okay, though, since their 1031 exchange has no bearing on you other than a potential delay in closing.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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a 1031 sale should be a good thing for any seller, especially if earnest money / due diligence has passed. 1031 buyers are under very strict rules of compliance, so from your perspecive it is a very sure thing, so act / plan accordingly. 1031 has very strict closing dates, so you better be ready to vacate and meet the terms of your agreement.
Of course anything can happen... just expect this to happen as planned.
A 1031 exchange agent is buying your property on behalf of their clients.
Strictly business.
No monkey business.
I hope you have a very savvy agent (If you have one, which I never had for many 1031's)... I don't want some 3rd party tanking my deals.
I know little about this type of deal.. but witnessed a problem in my neighborhood where the seller had a single family home and the buyer had some sort of business (I believe, got this all second hand). Buyer got a contingency on selling whatever their investment was first. Buyer apparently was either way over priced or their particular market was worse than the sellers. For whatever reason, the seller kept accepting delays on the contingency. This dragged on for many month and finally fell through.
Your focus is to sell this property. If they plan on breaking the hoa rules or the irs rules, that is their business.
What this guy said.
A 1031 exchange is when you take the proceeds from the sale of one investment property and roll them into a new investment property. It's not a way to avoid taxes but rather a vehicle which allows you to defer them.
Anyway, as already stated so perfectly by 2bindenver, who cares? It has no impact on you and your goal in this exercise which is to get the house sold. If the new owner plans to break the HOA rules or commit tax fraud that has nothing to do with you. You're selling them a house. Whatever they do with it once they own it is their business/problem. Yes, you can be a conscientious neighbor and try to make sure they're not going to be breaking HOA rules but are you OK with it potentially causing you to start this process over? Up to you.
It sounds like they have not yet sold the property that they will be replacing, so your issue is that you have sold contingent upon them selling. Your sale won't go through until they sell theirs and it closes.
As for the 1031, it should have no effect on you and not have any effect on your expenses.
The only time it might cause you problems would be if you pulled out after the 45 day declaration period, after which your buyer could not declare another property for his exchange. At that point your buyer would be losing a lot of money so would not be too happy with you.
I don't know why your sale would be contingent upon the sale of his residence, unless he is combining the proceeds of the sale of his residence and the sale of an investment property in order to generate enough money to pay for the OP's house. You are allowed to add as much cash as you wish into a 1031 purchase as long as you use all the sales price of the sold place.
He can actually buy your house as an investment property and not rent it out. There are all sorts of real estate investments that qualify for a 1031 exchange.
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