Calling Dave H (MI), Land swap????

I am selling my brother some ground. I bought this land 30 years ago. The farm is split by a pretty big creek. There are limestone bluffs 50-60 feet tall in places. To get to the back half you have to drive around the block so to speak. That is about a 4 mile drive. The back is against my brother's farm. So he has always farmed the back and just paid me rent. Well now he wants to build a cabin/house looking over the bluffs. Smaller place 1200-1500 sq. ft. He is thinking to use it as a weekend place for now with out doing much finishing right now. Then over time fully finish the place as a retirement home.

Anyway he will be buying about 35 acres. I bought this at about the bottom of the farm crisis in the 1980s. So capital gains would bit on it. So I am wanting to roll the money back into real estate. (1031 exchange) So here are my questions.

(Tax guy out of town until next week)
1) Does it make any difference what type of real estate the money is rolled back into??? Meaning this is farm/pasture ground can I buy a rental house and still roll it???

2) If I am understanding this correctly you only have 45 days to complete the exchange.

The main reason I am asking this is my brother is raring to get started building. So he wants to go as soon as the ground is thawed. I do not have any real estate in mind that would be of interest for me to buy right now. There are some houses around that might be of interested as rentals. As far as farm ground I think there is a ways to go before the values hit bottom so I do not want to buy this year. So I am thinking of working out a deal with him basically having possession but with us not doing the actual transfer until a later date. I am not worried about him on the ground for two reasons. 1) It will be a cash transaction between us. 2) I have never used the ground he is buying anyway. It was the scrub part of the good ground on my side of the place. So its value was real low in 1986.

So I am trying to get my head wrapped around a way for this to work without me losing out to taxes. I have no motivation to sell. I am getting a return on what he farms. So I do not want to pay a bunch of capital gains and end up with less income than I now am getting.

Here is some basic information. In the simplest form of 1031 exchange, you transfer your property and then have 45 days to identify the property you will receive in the exchange. Actual receipt of the new property is accomplished in 180 days. None of the exchanges I have been involved in over the years were simple. In almost all cases the recipient found and transacted for the new property BEFORE giving up the old. This is a parking transaction and really needs a qualified intermediary to handle things. Sounds like yours could end up being relatively simple in that you would let your brother build on the land and then find some real estate you want and contract with him to do the exchange. You should have paperwork protecting you AND your brother in case of some untimely tragedy in the interim.

Generally in IRC 1031 real estate is real estate. I see no problem with exchanging farm land for rental property. In extremely rare cases (twice in 30 years), where I knew the parties extremely well, I have acted as intermediary and done the parking transaction thing in complex exchanges. HTH...it's getting late here and I may have missed something. Will let you know if anything else comes to me. You have my email also...feel free to use it.

Thank You Dave. I sent you an email.

JD and DAVE what would happen if you sold it to him at a loss say $5000??? What would happen if you gave it to him or traded for say a Farmall H. Kind of issue I am curious about.

jd, i have done a 1031 and a 1033 exchange. here in illinois we needed a 1031 agent to handle the transaction. the funds from the sale of your first property were held by the 1031 agent, you could NOT put hands on the money. i needed to identify 3 suitable properties for the trade. (in case the primary choice property fell thru) . i also used our attorney to oversee the sale. the 1033 sale was due to emminent domain from a municipality, you had a much longer time to complete the transaction. it can get sticky, so use a GOOD real estate attorney. have john t do it ....maybe pro-bono??? if john t does it, make sure you have good solid copper grounding rods driven in the ground!!

Why not just trade some acres for some of his acres that are in a better location for you . Base the acres by the value of the 2 properties. No cash has to trade hands and then transfer the ownership.
I would guess this would be to simple for the government to deal with.

The nnalert Clinton approach?