Common Pitfalls...
* A dealer trap occurs when you develop land. You may lose 1031 opportunity if the IRS determines that the land is strictly inventory.
* A partnership pitfall prevents an individual barter seeking to exchange his interest in the partnership's r.e. assets for like-kind real estate he wants to acquire in his name individually. Therefore, a partnership's interest is not eligible exchange properties. However, the partnership itself can exchange partnership property.
* The reverse exchange occurs when a taxpayer acquires the replacement property and uses it before selling the relinquished property.
When you build, you are limited by the 180-day period. In addition, you cannot exchange into an improvement built-on-land that you already own.
* The related party problem creates a two-year mandatory holding period if you buy from or sell to a related party (actual relatives and controlled entity).
* Seller Carry Back financing can be taxable on the "Installment Sale Basis." Be sure to discuss this issue with your accountant or tax advisor to see how this will effect your exchange. There are a few options you can consider.
