1031 for half of real estate?

Submitted by Douglas Bauerband on Thu, 2016-06-16 15:45

Client has a piece of property worth approx. 800k. Not looking to buy another property.

a. Can he 1031 into a REIT for half of the 800k to limit his capital gains?

or

b. Does he half to do the whole 800k into a REIT to avoid capital gains now?

and

c. when the REIT closes and he gets his cash (lets say In 5-7yrs) that is when he owes the capital gains on the property, correct (by doing the 1031, its just delaying the payment of capital gains)?

Thank you,
Douglas



Submitted by Alan - IRA critic on Thu, 2016-06-16 17:55

From a 1031 specialist firm:

Can I buy shares in a Real Estate Investment Trust (REIT) as my like-kind replacement property?No. Your relinquished properties and your like-kind replacement properties must be like-kind property in order to qualify for 1031 exchange treatment. So, if you sell an interest in real property you must also acquire an interest in real property. An interest in a Real Estate Investment Trust (REIT) is actually a security interest and not an interest in real property even though the REIT itself owns real property, and security interests are specifically excluded from 1031 Tax-Deferred Exchange treatment.You can complete an upREIT structure that involves a combination of a 1031 exchange first with a 721 exchange later.  This structure effectively allows you to dispose of real estate and exchange into a REIT on a tax-deferred basis.  There are limitations however, so you might want to read more about the various tax-deferral solutions available. 

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