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 Dear
Tax Talk,
I am closing on a lake lot on Tuesday. I held it for more
than a year. I want to buy another lake lot right away, but I haven't identified
the property. Can a 1031 exchange help me with capital gains? Can I close without
knowing where I will reinvest? After I close, can I still execute a 1031 exchange?
-- Tracy
 Dear
Tracy,
You've had more than a year to think about this and you write
me a few days before the closing? A Section 1031 exchange requires that you close
in escrow through a qualified intermediary such as a title company. Most title
companies offer this service for an additional fee of $500 to $750.
In
a 1031 exchange, the title company holds the proceeds from the first closing in
its escrow account until you're ready to close on the replacement property. If
you already took the proceeds at closing, it's too late to do a Section 1031 exchange.
Under the law you have 45 days to identify a replacement property
and 180 days to close on it. You must identify the replacement property in a signed
written document such as a Realtor's offer contract. You must clearly describe
the replacement property in the written document. For example,
use the legal description or street address for real property. You certainly can
close without knowing where you want to reinvest. But with a limited amount of
time, you need to be certain you can find a replacement property. You
can identify more than one replacement property. Regardless of the number of properties
you give up, the maximum number of replacement properties you can identify is
the larger of the following: - Three.
-
Any number of properties whose total fair market value (FMV) at the end of the
identification period is not more than double the total fair market value, on
the date of transfer, of all properties you give up.
At
worst, if you can't find a replacement property, you'll end up paying the same
taxes you would have paid had you not entered into the exchange. Of course you'll
be out the exchange fees you paid the title company. | 
