Q: It has been one week since we closed on the sale of our rental property.
We want to purchase another investment property to avoid paying capital gains.
Is it too late for us since the money has already been given to us by the escrow company?
A: When you do a 1031 tax free exchange, also known as a Starker Trust, you typically have 45 days on either side of the closing to designate the property that you will exchange. The problem you have is that you and your spouse (or partner) were given the funds personally.
You should have directed the funds go into an escrow account and hired a third-party company to help you facilitate the transaction.
There are many rules that have to be followed with a 1031 tax free exchange. Once you break one, it’s hard to go back. For more details, please consult with a real estate attorney who frequently does 1031 tax-free exchanges.
Published: Feb 18, 2005