If I have a lease with option to buy my bldg, can I enter into a 1031 exchange, even without having title?

I am towards the end of my lease and will be exercising my option to buy. I would like to then sell immediately and 1031 into similar properties closer to where I currently live. The only problem I see is that I do NOT hold title to the building I am in. I feel that we would pass the burdens and benefits test, but even that is not 100% clear. Has anyone been through a similar situation?
In General Area - Asked by KC N. - Jun 30, 2014
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Answer(s)

Steve C.
Broker/Agent
Frederick, MD

I would recommend you discuss this with a local real estate attorney and tax expert. It will be worth the investment. A wrong move and it could be very expensive for you.

Jul 1, 2014
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BILL B.
Broker/Agent
Fresno, CA

Escrow will not close unless a clear Title is in your name. In my opinion you should do 1031 exchange only after you have exercised your option first and transfer has taken place. Having an option does not always turn into an ownership. So Check with your Escrow Officer first.

Jul 1, 2014
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MPC V.
Owner/Investor
San Francisco, CA

An option to buy is considered personal property, not real property, as you do not have title. So you would not be able to 1031 exchange without first taking title. A 1031 exchange is for (investment) real property.

Jul 1, 2014
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harvey m.
Broker/Agent
Delray Beach, FL

no

Jul 2, 2014
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Nancy G.
Broker/Agent
Rochester, NY

Look into reverse 1031. Identify and possibly go under contract on a building you are in with a contingency on selling and closing on the building you are in...yes, that means you have to exercise your option. Please ask your real estate attorney and 1031 expert about the above information.. I am not an expert here. Ron Raitz is a 1031 expert. Google Atlanta Deferred Exchange. Hope this helps.

Jul 16, 2014
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Sam P.
Redlands, CA

The entire purpose of a 1031 exchange is to defer the gain on the sale of property when you buy another property to replace it. If you have a lease with an option to buy, you do not own property in which you have a basis. So there is no reason to do a 1031 exchange.
Once you exercise your option to purchase and then you own the property, you will have a basis in the property in the amount of your purchase price plus any costs of the transaction. Then, you can do a 1031 exchange to sell the property and use the proceeds to purchase a new property, so long as that makes financial sense.
Always use a reputable qualified intermediary when doing a 1031 exchange and always use the services of an escrow agent or an attorney in completing the transaction.

May 11, 2015
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