Can You Use a 1031 Exchange to Buy at Tennessee National?

A 1031 exchange can work for a purchase at Tennessee National, but only if you will hold the property as an investment. If you plan to live in it, an exchange generally does not apply.

That is the short answer. The longer one depends on your own plan, and that is a question for a CPA, not for us. This page explains how an exchange works in plain words and who has to sign off. It is general information, not tax or legal advice.

What is a 1031 exchange?

A 1031 exchange is a swap of one investment property for another that can put off the capital gains tax on the sale. The name comes from Section 1031 of the federal tax code.

Three things to know up front:

• The tax is deferred, not forgiven. It generally comes due when you later sell without exchanging again.
• "Like-kind" is broad for real estate. Land, a rental house and a commercial building can generally be exchanged for one another. What matters is how the property is held, not what it looks like.
• It is for investment or business property. A home held for your own use is generally outside the rule.

Can a Tennessee National property qualify?

It can, but only if you hold it as an investment, and your CPA has to make that call before you sell anything. The same homesite can fit one buyer's exchange and fail another's, because the answer generally turns on how you hold the property and why.

That table starts a conversation. It is not a ruling. If your plan is to live here, play the Greg Norman Signature golf course and keep a boat in the marina, that is personal use, and an exchange is probably not your route.

We do not state the community's rental rules in this post. If rental income is part of your plan, ask your Tennessee National land consultant for the current community documents and read what they say about rentals before you count on it.

How does a 1031 exchange work, step by step?

It runs in a fixed order, and getting the order wrong can sink the whole exchange.

1. Talk to a CPA before you sell. Not after. Confirm that the property you are selling qualifies and that your plan for the next one does too.
2. Hire a qualified intermediary before the sale closes. This is a company that holds the sale proceeds and handles the exchange paperwork. If the money lands in your own account, the exchange is generally over.
3. Close your sale. The deadlines generally run from that day.
4. Name your replacement property in writing. The rules generally give you a short, fixed window to do it.
5. Close on the replacement property. There is generally a second fixed deadline for this. The intermediary typically pays the seller from the funds it is holding.
6. Report the exchange. Your CPA handles the reporting on your tax return.

Both deadlines are counted in days and both are short. Do not plan on any flexibility. Your qualified intermediary will give you the exact dates for your sale. Do not take them from a blog, including this one.

Where does Tennessee National fit in an exchange?

Tennessee National can work as a replacement property for the right plan, for a few plain reasons.

• There is no deadline to build. You can close on a homesite and hold the land. Nothing in the purchase forces you to start construction. Your reason for holding it still has to satisfy the tax rule.
• There is more than one kind of property. The five ways to own are The Timbers (wooded homesites), lake homesites, waterfront homesites, Land & Home packages and townhomes. Finished homes are listed on the properties page.
• You can do your looking early. The window to name a property is short, so the time to visit is before your sale closes. You can schedule a visit, and a land consultant can tell you what is available now.
• Tennessee has no state income tax. The state where you sold may still have its own tax rules, so have your CPA look at both ends.

Pricing is in the info pack. Your CPA will want those numbers, because how much you reinvest can affect how much tax you defer.

What goes wrong most often?

Five things, and all of them are avoidable.

• Touching the money. In a typical exchange the proceeds go to the intermediary, not to you.
• Missing the first deadline. Have your candidate properties picked before your sale closes.
• Taking cash out. Money you pull out of the exchange instead of reinvesting is generally taxable.
• Personal use. Treating an exchange property as your own getaway can undo the investment purpose.
• Going without advisors. The rules are strict. A CPA and a qualified intermediary are part of the cost of doing this.

The purchase itself closes the way any other does, with one more party at the table. How closing on a lot works covers the title work, the survey and the documents.

The honest answer

A 1031 exchange is a tax tool. It is not a reason to buy a piece of land, and nothing on this page is a claim about what land here will be worth later.

If what you want is a place to live on Watts Bar Lake, about 30 minutes from Knoxville, an exchange is probably the wrong tool, and you lose nothing by knowing that now. Buying a lot now and building later works fine without one.

If you are moving investment real estate from one place to another, start with your CPA and a qualified intermediary. Then come look. We can show you what is for sale and send the pricing. We cannot tell you whether your exchange qualifies, and you should be wary of any seller who says they can.

Facts about Tennessee National come from the community. Lake facts come from TVA. Rules, taxes, loans and insurance change, so confirm anything that affects a purchase with the right office or professional before you buy.