Smart Money – Section 1031 real-estate exchanges are back – and that means investors need to be cautious.

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If you are unclear about the rules surrounding 1031 exchanges, then there will be a seminar in mid-April that might be for you. Sponsored by DME Holdings, LLC, this event will be a dinner event held for 2 nights in San Rafael and seating is limited.

There is no obligation and nothing to buy. Due to the popularity of this dinner program, RSVP is required.

Where: San Rafael Joe’s, 941 4th Street, San Rafael, CA
When: April 18th or April 19th at 6:30 PM
Call: (800) 234-1765 to RSVP

As we are unable to attend, there are 4 tickets reserved with RSVP code 200506, first come, first served.

- Mick Orton

Once again we refer to the January 7th article in SFGate by Robert Bruss which explores 1031 exchanges:

Q: In a recent article you correctly said Internal Revenue Code 1031 tax-deferred exchanges must involve a trade equal or up in both price and equity. But you mistakenly went on to say the replacement property must be a “like kind” property. The current rule allows an exchange of any property held for investment purposes. Thus, an apartment building can be traded for bare land, etc. Please make this correction for the benefit of your readers and my clients, as I am a real estate agent.

Jim S.
San Francisco

A: You should be aware the tax term “like kind” does not mean “same kind” of property when referring to IRC 1031 tax-deferred exchanges.

“Like kind” means the qualified property must be held for investment or use in a trade or business. Almost every property can qualify except a personal residence or dealer property, such as a home builder’s inventory of houses.

To illustrate, an investor can make a “like kind” trade of a rental house for a warehouse, or an apartment building owner can make an IRC 1031 “like kind” tax-deferred exchange for a shopping center, as long as the trade is equal or up in price and equity without receiving any cash “boot,” which is taxable “unlike kind” property.

Q: I don’t understand the 60 months part of Internal Revenue Code 121 for home sales. Can I own my home for 24 months, live in it as my primary residence, and qualify for the $250,000 sale exemption? Or must I own the home for 60 months and live in it for 24 out of those 60 months?

John C.
Dublin

A: Unless you acquired your principal residence in an Internal Revenue Code 1031 tax-deferred exchange, you do not have to own it for 60 months before qualifying for the IRC 121 principal-residence-sale exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return).

At a minimum, to qualify for the capital-gain tax exemption, you must have owned and occupied your principal residence at least 24 months before its sale. That means you could have purchased it as recently as 24 months before its sale if you occupied it as your primary residence for those 24 months. Please consult your tax adviser for full details.

Q: My late mother and I owned a house together as tenants in common. Her written will left everything to me, her only offspring. When I went to see a local probate attorney, she said it would take at least six months and cost me about 5 percent of my mother’s modest estate to transfer everything to me. Is this true?

Sophie R.
Tampa

A: Unless your late mother’s estate qualifies for an exception to the probate requirements in the state where she was a resident, the attorney is probably correct.

The only easy title transfers without probate after a property owner dies are if the title was held in joint tenancy with right of survivorship or in a revocable living trust. Then probate court jurisdiction does not apply.

As for the probate attorney’s fee of 5 percent of the gross estate, each state has a maximum statutory fee depending on the estate’s total valuation. However, that fee is negotiable downward.

If the attorney thinks you will take your business elsewhere, she is very likely to reduce her fee substantially unless there are complications, such as a contested will.

- SFGate