All the Questions You Were Afraid To Ask About 1031s
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The 1031 tax deferred exchange allows you to exchange between various types of real estate assets, so long as they are considered “real property”.
Many of our clients think they can only exchange between the same asset class, for example from “multi family” to “multi family” assets. This is not the case.
Here are […]
Written by DROdio on May 24th, 2008.
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A user asks: “If I have rented a property for twenty three years and have depreciated the expenses to the max, can I live in it for two years and wipe out all of the capital gains that I may have had to pay if I would have sold it. Two years later, if Isell […]
Written by DROdio on May 20th, 2008.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Topics and Section 121 Exemption and All the Questions You Were Afraid To Ask About 1031s and 1031 Tax-Deferred Exchanges.
1031 Exchanges are complex tax transactions. In order to gain assurance that a 1031 Exchange is a suitable alternative for you, you are encouraged to consult with a tax professional about your specific tax situation. Failure to abide by IRS regulations for 1031 Exchanges could result in a failed exchange. Failed exchanges may result in […]
Written by DROdio on December 17th, 2007.
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A Section 1031 exchange is one of the few techniques available to postpone or potentially eliminate taxes due on the sale of qualifying properties.
By deferring the tax, you have more money available to invest in another property. In effect, you receive an interest free loan from the federal government, in the amount you would have […]
Written by DROdio on December 17th, 2007.
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In a typical transaction, the property owner is taxed on any gain realized from the sale. However, through a Section 1031 Exchange, the tax on the gain is deferred until some future date.
Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for […]
Written by DROdio on December 17th, 2007.
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TICs are considered securities and are subject to various securities rules and regulations. TICs are not available to the general public. Only accredited investors, as defined by Regulation D of the Securities Act of 1933, may invest in TICs. Welton Street will help you determine if you qualify as an accredited investor. An accredited investor […]
Written by DROdio on December 17th, 2007.
Read more articles on Web Properties and CardeaCommercial.com and All the Questions You Were Afraid To Ask About 1031s and Tenants In Common (TIC) Transactions.
The purchase of a Tenant-in-Common (or undivided fractional interest) structure allows investors to purchase an interest in a significant real estate asset, perhaps larger than they could obtain individually. The investor acquires a percentage ownership (title and deed) and receives passive rental income while receiving the tax benefits of traditional real estate. The investors own […]
Written by DROdio on December 17th, 2007.
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Here are some basic rules of thumb about ho the 1031 process works.
If you sell a property for $7,300,000, the first thing you have to remember is that you have to replace the property with one or more properties jointly valued at at an amount equal to or greater than your net sales […]
Written by DROdio on December 5th, 2007.
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Realized gain is the increase in the taxpayer’s economic position as a result of the exchange. In a sale, tax is paid on the realized gain. Recognized gain is the taxable gain. Recognized gain is the lesser of realized gain or the net boot received.
Written by DROdio on March 9th, 2007.
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Here is a fact sheet from our partners at Welton Street describing the 1031 exchange process: Cardéa - 1031 Exchange Fact Sheet
Written by DROdio on February 26th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Identification in the FIRST 45 days and All the Questions You Were Afraid To Ask About 1031s.
The QI is a 1031 exchange Intermediary or entity that can legally hold funds to facilitate a 1031 exchange. To be qualified, the 1031 exchange intermediary must not be relative or agent of the exchanging party. As an exception, a real estate agent may serve as a 1031 exchange intermediary if the current transaction is […]
Written by DROdio on January 23rd, 2007.
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1918 - First income tax law
1921 - Section 202 of Internal Revenue Code states that gain or loss not recognized on exchanges of like-kind property
1924 - Non like-kind exchanges excluded from Section 202
1928 - Code section changed to Section 112(b)(1)
1954 - Section 1031 enacted
1975 - Starker exchange; Tax court approves delayed exchange
1977 - Tax court […]
Written by DROdio on January 23rd, 2007.
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In a 1031 Like-Kind exchange you can exchange any real property for any other real property within the United States or its possessions if said properties are held for productive use in trade or business or for investment purposes. Examples of 1031 like-kind exchange property include apartments, commercial, condos, duplexes, raw land and rental homes*. […]
Written by DROdio on January 23rd, 2007.
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3-property rule: You may identify any three properties as possible replacements for your relinquished property. More than 95% of exchanges use the 3-property rule.
200% rule: You may identify any number of properties as possible replacements for your relinquished property as long as the aggregate value of those properties does not exceed 200% of the value […]
Written by DROdio on January 23rd, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Identification in the FIRST 45 days and All the Questions You Were Afraid To Ask About 1031s.
dentification Period: Within 45 days of selling the relinquished property you must identify suitable replacement properties. This 45 day rule is very strict and is not extended should the 45th day fall on a Saturday, Sunday, or legal holiday.
Exchange Period: The replacement property must be received by the taxpayer within the “exchange period,” which ends […]
Written by DROdio on January 23rd, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Identification in the FIRST 45 days and All the Questions You Were Afraid To Ask About 1031s.
The real property you sell and the real property you buy must both be held for productive use in a trade or business or for investment purposes and must be like-kind.
The proceeds from the sale must go through the hands of a qualified intermediary and not through your hands or the hands of one of […]
Written by DROdio on January 23rd, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and All the Questions You Were Afraid To Ask About 1031s.
If you have real property that will net you a gain upon sale (generally property that has been substantially depreciated for tax purposes and/or has appreciated in fair market value), then you are exactly the person who should consider a 1031 exchange.
There are 5 tax classes of property:
1) Property used in taxpayers trade or business.
2) […]
Written by DROdio on January 23rd, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and All the Questions You Were Afraid To Ask About 1031s.
Under Internal Revenue Code (IRC) Section 1031, a real property owner can sell his property and then reinvest the proceeds in ownership of like-kind property and defer the capital gains taxes. To qualify as a like-kind exchange, property exchanges must be done in accordance with the rules set forth in the tax code and in […]
Written by DROdio on January 23rd, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Calc_Q1 and All the Questions You Were Afraid To Ask About 1031s.
If you qualify to deduct expenses for the business use of your home, you can claim depreciation for the part of your home that is a home office. Generally, the part of your home that is a home office is depreciated over a recovery period of 39 years using the straight line method of depreciation […]
Written by James Brennan on January 21st, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Tax Calculations and Section 121 Exemption and Second Homes & Vacation Homes and Reporting Your Exchange and All the Questions You Were Afraid To Ask About 1031s.
This article is mandatory reading for those looking to turn their rental property into primary residence property….
Converting Qualified Use to Personal Use
Written by James Brennan on January 21st, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Section 121 Exemption and Second Homes & Vacation Homes and All the Questions You Were Afraid To Ask About 1031s.
Replacements of roof, rain gutters, windows, and furnace on a residential rental property are capital improvements to the structure because they materially add to the value of your property or substantially prolong its life. The items would be in the same class of property as the rental property to which they are attached. Since the […]
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and State-Specific 1031 Issues and Tax Calculations and General Tax Q&A and Calc_Q3 and Calc_Q4 and All the Questions You Were Afraid To Ask About 1031s.
If you buy real property, certain fees and other expenses become part of your cost basis in the property.
Real estate taxes. If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. You cannot deduct […]
Written by James Brennan on January 20th, 2007.
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The properties being exchanged must be of the same asset class. Like kind is defined in the tax code as meaning “similar in nature or character, notwithstanding differences in quality or grade”. All real property is considered like kind and must be held for investment or held for productive use in a trade or business.
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Section 121 Exemption and 1031 Calc FAQs and Calc_Q1 and All the Questions You Were Afraid To Ask About 1031s.
A term used to describe delayed, non-simultaneous, exchanges. Starker vs. United States (1979) established the delayed exchange concept.
Written by James Brennan on January 20th, 2007.
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Cash or mortgage relief received in an exchange, the result of which is a taxable gain.
Written by James Brennan on January 20th, 2007.
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The taxpayer intending to defer the taxable gain on the exchange of investment property.
Written by James Brennan on January 20th, 2007.
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The IRS does not allow extensions for either the 45-day period or the 180-day period.
If the exchangor’s 45th or 180th day falls on a weekend or holiday do I get the benefit of the following business day?
No. The IRS calculates this timeline based on calendar days. There are no extensions given.
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Settlement Q&A and Identification in the FIRST 45 days and 1031 Calc FAQs and Calc_Q1 and All the Questions You Were Afraid To Ask About 1031s.
A QI should be highly reputable, experienced, and trustworthy. The QI should also be bonded with adequate insurance coverage because the QI holds large sums of money in trust during the exchange. Unfortunately, the intermediary industry is unregulated in most states. There have been several cases nationwide involving taxpayers who lost all of their money […]
Written by James Brennan on January 20th, 2007.
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This creates several critical problems for the exchange: First, since the taxpayer has the right to change the escrow instructions and withdraw the proceeds, he or she will be considered in constructive receipt of the proceeds. Similarly, in an escrow context, the taxpayer is a principal and the escrow officer is legally deemed to be […]
Written by James Brennan on January 20th, 2007.
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Generally Not. A QI may not be an agent of the taxpayer. The IRS precludes any person or entity from acting as an intermediary if he or she has performed any non-exchange related business service for the taxpayer within two years from the date of transfer of the relinquished property.
Written by James Brennan on January 20th, 2007.
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Actual receipt occurs if the taxpayer physically receives possession of the sale proceeds. If the proceeds are “available or accessible” to the taxpayer so that he or she may draw upon them, or if the proceeds are merely credited to the taxpayer, the taxpayer is deemed to have “constructive” receipt of them resulting in a […]
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Calc_Q7 and Calc_Q8 and All the Questions You Were Afraid To Ask About 1031s.
Section (g) (4) of the IRS Section 1031 deferred exchange regulations requires a “safe harbor,” such as a Qualified Intermediary (QI), to facilitate the exchange. The QI helps ensure that the taxpayer does not actually or constructively receive the exchange proceeds anytime before receiving the replacement property, as is required for deferred gain treatment.
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Tax Calculations and General Tax Q&A and Form 8824 and Reporting Your Exchange and All the Questions You Were Afraid To Ask About 1031s.
A QI is an independent facilitator unrelated to the exchanger. The QI buys and resells the properties involved in the exchange for a fee. It is strongly advisable that you select a corporation rather than an individual. If an individual intermediary dies or becomes incapacitated, your exchange may not be completed within the time constraints.
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Tax Calculations and All the Questions You Were Afraid To Ask About 1031s.
Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties. 1031, or tax-deferred, exchanges hold great advantages for investors.
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and All the Questions You Were Afraid To Ask About 1031s.
No. However, any cash (equity) that is not reinvested in real estate will be taxable (and is known as cash boot).
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Form 8824 and Reporting Your Exchange and 1031 Calc FAQs and Calc_Q8 and All the Questions You Were Afraid To Ask About 1031s.
Yes; this requires that you do a reverse exchange however. The reverse exchange ‘may’ be an option provided you have the ability to structure the reverse exchange according to the safe harbor guidelines.
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Identification in the FIRST 45 days and Multiple-Property Exchanges and All the Questions You Were Afraid To Ask About 1031s.
The longer the better. Unfortunately, there is no safe holding period for property to automatically qualify for an exchange. Keep in mind, the property only need to be “held for investment” for it to be eligible for an exchange. Time of ownership is ONLY one factor at which the IRS looks at when determining if […]
Written by James Brennan on January 20th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Calc_Q2 and All the Questions You Were Afraid To Ask About 1031s.
Great question. Yes there is. Assuming your client is selling an investment property that he or she has held for longer than one year, the client would defer paying capital gains taxes on 15% federal, State Capital Gains (around here between 5-9%) and 25% depreciation recapture tax on all depreciation deductions taken. Thus, this effectively […]
Written by admin on January 19th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and State-Specific 1031 Issues and Tax Calculations and General Tax Q&A and Calc_Q7 and Calc_Q8 and All the Questions You Were Afraid To Ask About 1031s.
I had this question posted to me by Vince Hurteau, a successful realtor in DC:
What are ALL of your fees?
Answer: Our fees are flat at $750 for a standard 1031 exchange. Build-to-Suit exchanges and Reverse Exchanges are significantly more ranging from $3,500 to $25,000 for non-Safe Harbor Reverse Exchanges.
Written by admin on January 19th, 2007.
Read more articles on Web Properties and inside1031.com and CardeaCommercial.com and Settlement Q&A and All the Questions You Were Afraid To Ask About 1031s.