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Wednesday, September 10, 2008

Daily Observations - Three Strikes Rule

Tonight I want to briefly touch on 1031 exchanges and the identification policy.

A 1031 is a tax exchange where you can take your profit from one transaction and roll it into another purchase to avoid capital gains and further taxation. There are many very specific rules that are applied and conditions that have to be met.

As I am not an expert or profess to have anything but a cursory knowledge of the subject I want to stick with the aspect that we as financial brokers have to deal with. A client has the opportunity to identify up to three properties. If they are unable to close any of the identified properties the 1031 will not occur and the client will have a tax burden.

The three strikes rule is a very severe penalty for a client not being able to close on one of the three properties identified with the accomodator. My recommendation is that you first run the numbers on any property and get a lender to prequalify the property and buyer before they legally identify the property for for the accomodator. For once the property is prequalified and you know that there can be a lender identified that will close the loan then the client would feel more comfortable legally identifying the properties.

Read this blog in conjunction with the blog about the out of state borrowers and you can see the correlation very clearly.

For more on investment property visit loanforbiz.com.

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