Advanced Topics
The Build to Suit Exchange
The build-to-suit exchange, also referred to as a construction or improvement exchange, gives the Exchanger the opportunity to use all or part of the exchange funds for construction, renovations or new improvements to the Replacement Property.
Non-Safe Harbor Reverse Exchanges
A “reverse” exchange occurs when the taxpayer acquires the Replacement Property before transferring the Relinquished Property. A “pure” reverse exchange, where the taxpayer owns both the Relinquished and Replacement Properties at the same time, is not permitted. As a...
Combination Exchanges
When a taxpayer intends to acquire multiple Replacement Properties, with some properties closing before the Relinquished Property sale and some properties closing after, both the Forward and Reverse Exchange structures can be combined to maximize the tax deferral. ...
Avoiding Boot
How much do I have to reinvest?
The Safe Harbor Reverse Exchange
What is a Reverse Exchange?
Vesting Issues
How long do I have to hold title?
Seller Financing Combined with a Tax Deferred Exchange
Sometimes it is necessary or desirable for an Exchanger to accept payment from the Relinquished Property purchaser in the form of cash and a promissory note.
Related Party Exchanges
Exchanges between related parties are allowed but the Exchanger must follow specific rules for the exchange to qualify for tax deferral.
Refinancing Before and After Exchanges
Refinancing to pull equity out of a property prior to or after completing a tax deferred exchange can result in a taxable transaction under the “step transaction doctrine.”
Property Held for Resale Purposes
The intent by the taxpayer to hold property “primarily for sale” will prevent the property from qualifying for IRC §1031 treatment.
Partnership Issues
Can I dissolve my entity right before the close of escrow?
Other Interests in Real Property and Mixed Use Exchanges
Certain interests in real property, such as natural gas pipelines, may be exchangeable for a fee interest in real property.
LLC Issues
Because of advantageous tax treatment combined with liability protection, limited liability companies (LLCs) have become a preferred way to own real estate in the United States.
Limitations on the Safe Harbors: The “(g)(6)” Restrictions
The 1991 Treasury Regulations for tax deferred exchanges under IRC §1031 established four “safe harbors,” the use of which allow a taxpayer (Exchanger) to avoid actual or constructive receipt of money or other property for purposes of completing a §1031 exchange.
Impact of Depreciation Recapture on Exchanges
Depreciation is an integral part of calculating the adjusted basis of property, and thus is an important component of the non-recognition provisions of IRC §1031.
Exchanges of Foreign Property
Exchangers may freely exchange properties throughout the United States, trading property in one state for replacement property in another state.
Estimating the 1031 Tax Deferral on the Sale of Investment Property
An Exchanger should always consult with competent independent legal and/or tax advisors to determine the applicability of any IRC §1031 tax deferred exchange benefits.
Do Vacation and Second Homes Qualify?
It has been established that vacation or second homes held by the Exchanger primarily for personal use do not qualify for tax deferred exchange treatment under IRC §1031.
Converting a Principal Residence to Minimize Taxes by Combining IRC §1031 and §121
IRC §1031 permits the deferral of capital gains tax on investment or business use property that is exchanged for like-kind investment or business use property of equal or greater value.
1031 Exchange Disaster Relief Deadline Postponements
Rev. Proc. 2007-56 permits extension of IRC §1031 exchange deadlines upon issuance of an IRS Notice or other guidance permitting relief to taxpayers due to Federally declared disasters.
FIRPTA Issues in 1031 Exchanges
The Foreign Investment in Real Property Transfer Act (IRC §1445 & Treasury Regulations §1.1445), more commonly known as “FIRPTA” is a federal law that requires withholding on dispositions of U.S. real estate by “foreign persons,” defined as a nonresident alien individual, a foreign corporation that does not have a valid election under section 897(i) to be treated as a domestic corporation, a foreign partnership, a foreign trust, or a foreign estate.
