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One Day Exchange

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STEPHAN

Senior Member
What is the name of your state? Florida

Do you know what a "One Day Exchange" is?

I want to buy a property and the seller wants me to agree to it. My CPA is on vacation and I can only see him next week. My title company has never heard this.

Nothing found on Google.

The sell said: "Interesting concept that preceded like kind exchanges and still exists "

Thanks for your help!
 


Taxing Matters

Overtaxed Member
What is the name of your state? Florida

Do you know what a "One Day Exchange" is?

I want to buy a property and the seller wants me to agree to it. My CPA is on vacation and I can only see him next week. My title company has never heard this.

Nothing found on Google.

The sell said: "Interesting concept that preceded like kind exchanges and still exists "

Thanks for your help!
Be skeptical of pitches for transactions that are not well known. If they were so great lots of people would be doing them. As the term "one day sale" does not have a single standard meaning you'll need to describe the transaction details to us if you want any helpful comments on the tax treatment of it. That said, you're the buyer in this deal. There generally is no tax on the buyer of property unless you are paying for it with appreciated property of your own.
 

STEPHAN

Senior Member
Thanks! Strange.

Seller is a CPA and a lawyer and will hold a note. I just want to be careful.
 

quincy

Senior Member
Thanks! Strange.

Seller is a CPA and a lawyer and will hold a note. I just want to be careful.
A one day exchange (like-kind exchange, 1031 exchange) is essentially an exchange of one (investment or business) property for another “like” property, with the “exchange“ or closings on the properties done on the same day (simultaneously).

If you are unfamiliar with these types of property transactions, you should consult with your own attorney or wait for your own CPA to return.
 

STEPHAN

Senior Member
I know what like-kind exchange (1031) is, I have done many. As a buyer and a seller.

Apparently a one day exchange is something else.
 

quincy

Senior Member
I know what like-kind exchange (1031) is, I have done many. As a buyer and a seller.

Apparently a one day exchange is something else.
I believe a one-day exchange is simply closing on the properties on the same day instead of using the 180 (?) days to purchase a like property. But I could be wrong. :)
 

Taxing Matters

Overtaxed Member
I believe a one-day exchange is simply closing on the properties on the same day instead of using the 180 (?) days to purchase a like property. But I could be wrong. :)
Let me put it this way, "one day exchange" is not a term I've ever seen used in connection with regular section 1031 exchanges. There are two kinds of 1031 exchanges. The first is a regular exchange in which there is an immediate swap of the properties involved and there is the Starker exchange in which the cash received by the seller in the deal is held by a qualified intermediary and then used to buy the replacement property. That exchange must be done within 180 days. The OP's reference to the seller holding the note tells me something more is going one here than just a like kind exchange, if a like kind exchange is really involved at all. I'd really want to here the details of how this is going to work before commenting on the tax implications. If the OP is looking to do a section 1031 exchange he needs to be careful to meet the requirements exactly or risk the recognition of the gain. If he doesn't want to provide details here he ought to see his own tax attorney for advice to ensure he doesn't end up in a situation he doesn't want.
 

STEPHAN

Senior Member
Thanks for all your answers. I am just buying a multifamily property with the owner holding (a partial) note. I am very familiar with this. No exchange involved for me.

Once I find out what the owner has in mind, I will report back.
 

Taxing Matters

Overtaxed Member
Thanks for all your answers. I am just buying a multifamily property with the owner holding (a partial) note. I am very familiar with this. No exchange involved for me.
If that's all there is on your end it seems pretty straightforward. As in all real estate deals I'd have a real estate lawyer on board to ensure everything is done properly and that the seller isn't trying to slip something past you. Also, if you are using a regular lender for the balance of the purchase price make sure it is ok with the seller holding the note for part of the purchase. Some lenders require that they be the only mortgagee of the property.
 

quincy

Senior Member
Thanks for all your answers. I am just buying a multifamily property with the owner holding (a partial) note. I am very familiar with this. No exchange involved for me.

Once I find out what the owner has in mind, I will report back.
I would be interested in learning what you learn. It sounds more now like you are purchasing the property on a land contract with the intention of financing the loan with a bank later.

I agree with Taxing Matters that you should not move ahead with the transaction until you fully understand all that is involved.

Good luck, STEPHAN.
 

STEPHAN

Senior Member
Just to give an update. Just for fun. This is how creative a CPA / lawyer seller can get.

He wants to sell me a different property. Later he wants to change that deed against the deed of the property I want to have. All handled through a third person (lawyer) as a trustee.

Why? The sale of the first property would be income-tax-free for him, the exchange of property (same day exchange) would not be a taxable event.

You do not need to warn me ;-)
 

Taxing Matters

Overtaxed Member
Just to give an update. Just for fun. This is how creative a CPA / lawyer seller can get.

He wants to sell me a different property. Later he wants to change that deed against the deed of the property I want to have. All handled through a third person (lawyer) as a trustee.

Why? The sale of the first property would be income-tax-free for him, the exchange of property (same day exchange) would not be a taxable event.

You do not need to warn me ;-)
Oh, no, I don't think the deal, at least as I understand your description of it, would work even on his side of things. Some tax professionals, especially those who don't get much involved in tax litigation, seem to overlook the step transaction and economic substance doctrines when constructing cute transactions like this one. Those are doctrines the courts apply to help prevent abuse of the tax system (and Congress eventually codified the economic substance doctrine). Applying those doctrines the transaction gets collapsed to reflect what the real deal was: the sale to you of that second property, which then would apparently trigger gain for the lawyer/CPA or his/her client. When I was an attorney for the IRS I saw a number of instances where CPAs and transactional tax lawyers would devise clever multiple step transactions to concoct a great tax outcome for deals that without the tax gaming would have been much simpler. And pretty much any time you add steps to a deal solely for tax advantage you can expect that the IRS will likely attack it and the IRS has a pretty decent success record in the courts for that.

And as you have already recognized, this artificial transaction constructed to game the taxes carries risk for you if had decided to go along with it. I'd pass on it, and I'm guessing from the end of your post that you have decided to pass on it, too.

Thanks though for coming back and sharing what the proposal was. It is interesting to see what kind of things some tax pros still are willing to push.
 
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quincy

Senior Member
Just to give an update. Just for fun. This is how creative a CPA / lawyer seller can get.

He wants to sell me a different property. Later he wants to change that deed against the deed of the property I want to have. All handled through a third person (lawyer) as a trustee.

Why? The sale of the first property would be income-tax-free for him, the exchange of property (same day exchange) would not be a taxable event.

You do not need to warn me ;-)
Thank you for the update, STEPHAN.

I guess youhave got to give the guy points for creativity at any rate. :)

You are smart to pass on the property under those terms.
 

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