TEE-Shots Newsletter

“Can I buy REIT shares as my replacement property?”

I often hear about qualified intermediaries saying you can, but what does the IRS say?

Absolutely not! The IRS has ruled that REIT shares do not qualify as replacement property in a 1031 exchange. A REIT, or Real Estate Investment Trust, is like a mutual fund that owns real estate. It is a security, however, not real estate.

--The Experts

Can I sell two properties, and then only buy one new property to complete my 1031 exchange?

Yes, you can. In fact, this is a good strategy for reducing your management hassles by consolidating your investments. This may also make sense if you want to sell a few smaller properties in order to finance one more expensive property.

Can I buy a share of the new property then immediately transfer my share?

I know I cannot sell the old property in my name, and then turn around and buy a share of a partnership. But, can I buy a share of the new property in my name, and then immediately transfer my share of the land to the partnership?

What if the lender for the new property is insisting that the loan include my spouse’s name, and that my spouse must also be on the deed? Is this a problem?

The taxpayer (name that appears on the deed) for the sale of the old property must be the same taxpayer on the deed for the new property.

For example: If you sell as John C. Investor, you must buy as John C. Investor.

One of the basic requirements of a 1031 exchange is that you have to hold both the old property and the new property for investment. So what is the definition of “investment”?

Investment property is a very broad category. In fact, it generally includes any real property that is not your personal residence.

Examples of investment property include rental houses and condominiums, bare land, commercial office or warehouse space, apartments and farm land.