IPX1031® Insight Blog
Avoiding Boot
How much do I have to reinvest?
The Role of the Qualified Intermediary
Who is a Qualified Intermediary?
Safety & Security for Exchangers
How do I know my money is safe?
The Safe Harbor Reverse Exchange
What is a Reverse Exchange?
Exchanges with Intermediary
In a simultaneous exchange, the old Relinquished Property and the new Replacement Property are transferred concurrently.
Personal Property Exchange
Deferral of capital gain and other taxes through an IRC §1031 tax deferred exchange is also available for personal property held for investment or for productive use in a trade or business.
Multiple Asset Exchanges
Some business or investment assets, such as a hotel or farm, consist of both real and personal property.
The Exchange Process
Timing is important. Certain actions must be taken in sequence and exchanges must be completed within strict time limits.
Closing Costs and the Tax Deferred Exchange
There is little authority in the Internal Revenue Code or Treasury Regulations as to how to treat the variety of expenses and closing costs which may be associated with the sale or purchase of an exchanged asset.
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.
Tax Deferred Exchange Terminology
As with any other specific area of law, tax deferred exchanges under IRC §1031 have their own language, which may be confusing to those who are unfamiliar with these transactions.
Delayed 1031 Exchange – Timelines, Deadlines and Identification
The most common exchange structure is the delayed “forward” exchange in which the Relinquished Property is sold, the proceeds (“Exchange Funds”) are delivered to the Qualified Intermediary, and are subsequently used to acquire Replacement Property from a third party seller.
1031 Tax Straddling for 2014
updated October 2020 Be sure to read Tax Straddling – Pay Taxes in 2021 or 2022? 1031 Tax Straddling for 2014 With the end of 2013 approaching, there are investors selling real estate who are not sure whether to initiate a 1031 Exchange because they are concerned...
Death and Taxes Despite Government Shutdown
For years, people have wondered what would really happen if the federal government stopped working or essentially shut down. Welcome to today’s world where wonders of the past are actually occurring. And with all of the intricacies involved, how can a real estate...
1031 Exchanges Are Even More Valuable Now!
February 2013 Earlier this year many articles were written listing all of the tax changes that occurred at the beginning of 2013. That is not the purpose of this article. Instead we will review those changes that directly impact investment properties and discuss how...
Qualified “Like-Kind” Property
What is Like-Kind Property?
Dabbling in 1031s Costs Title Company Small Fortune
It is always interesting to learn from other people’s mistakes. In the following circumstances both the company and the client gained valuable insight on what to do differently next time. Whenever a court case makes the headlines, we know we should sit up and pay...
The Tax Deferred Exchange
What is a Tax Deferred Exchange?
Planning Ahead for a Successful Exchange
How do I plan ahead for a successful exchange?
California Clawback
updated May 2020 California "Clawback" in Full Effect Starting in January 2014 If you own California real estate and are planning on deferring taxes when you sell your investment by purchasing property in another State via a 1031 Exchange, be aware that California...
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.
DSTs Offer Interesting 1031 Solution
Investors who are looking for properties to complete their 1031 exchanges often ask us if there are “arm chair investments” that allow investors to own fractional shares of properties. The good news is that the IRS has blessed the Delaware Statutory Trust (DST) for...
IRS Grants 1031 Extensions for Disaster Victims
updated June 2020 Disaster Relief has changed. Be sure to read the most current Disaster Relief information Rev. Proc. 2018-58 here. This year our country has been stricken with a number of devastating natural disasters which have caused loss of life, property and...
Everything You Need to Know to Defer Taxes
updated May 2020 As we roll into the summer, it’s refreshing to see continuing economic improvement mirroring the growth of income property sales and 1031 Exchanges. However, the excitement of an increased property sale value can be quickly diminished with unexpected...
The Power of Exchanging into Multiple Properties
Selling just one relinquished property and buying just one replacement property is typically what is thought of when contemplating an IRC Section 1031 real estate exchange. Most tax advisors are aware on some level that multiple relinquished or replacement properties...
What Do Hotels, Gas Stations, Boats & Artwork All Have In Common?
updated May 2020 NOTE: Personal property exchanges were repealed with the Tax Cut and Jobs Act that was signed into law on December 22, 2017, and took effect on January 1, 2018.Read about the impact the Tax Cut and Jobs Act had on Sec. 1031 here. Real Estate Exchanges...
For Investment or For Sale?
updated June 2020 Be sure to read Property Held for Resale Purposes Most owners of real estate will tell you that if they bought a property for $75,000 and sold it a month later for $100,000, that it was a great investment. If they avoided paying the capital gain tax...
Tax Deferral in the Face of the 2010 Health Care Bill and the Expiration of the Bush Tax Cuts
Although George W. Bush has been out of office for four years, the implications of his tax cuts are still in place....but perhaps not for long. In 2001, Congress passed The Economic Growth and Tax Relief Reconciliation Act of 2001 (a.k.a. “The Bush Tax Cuts”) which...
1031 Exchanges as an Estate Planning Tool
updated June 2020 Be sure to read Planning Ahead for a Successful Exchange What do three children do when they inherit one property? If you answered “Fight!” you would probably be correct. Frequently, people think 1031 exchanges are only useful to defer taxes when an...
How Do You Know That Your Exchange Funds are Really in the Bank?
updated June 2020 Be sure to read Safety & Security for Exchangers and The Role of the Qualified Intermediary In recent months we've learned of Bernie Madoff and others who perpetrated frauds upon their clients, most recently, Russell Wasendorf, Sr. of Peregrine...
Utilizing a 1031 Exchange in a Workout Situation
updated June 2020 Be sure to read The Role of the Qualified Intermediary During recent years, real estate prices have dropped and foreclosures/deeds in lieu have increased. Economically distressed properties have been repossessed by lenders in transactions void of...
2012 Reposition Your Assets
June 2012 Is it Time to Reposition Your Assets? Yes, even in this economy, IRC Section §1031 Exchanges are happening! Recently investors have taken a step back to review their portfolios and revise their strategies for maximizing their return on investments. As for...
2012 Disaster Relief
updated May 2020 Disaster Relief has changed. Be sure to read the most current Disaster Relief information Rev. Proc. 2018-58 here. November 2012 DISASTER RELIEF – QUALIFYING FOR TAX EXTENSIONS From time to time we are asked “Can I have more than the specified 180...
Common 1031 Myths – Part II
There are countless myths and misconceptions about 1031 exchanges. What follows are a few of the myths heard over and over again in our offices. Here we attempt to set the record straight. For Myths 1-3, see Common 1031 Myths - Part I Myth #4 – You don’t need an...
Common 1031 Myths – Part I
There are countless myths and misconceptions about 1031 exchanges. What follows are a few of the myths heard over and over again in our offices. Here we attempt to set the record straight. Myth #1 – To do an exchange you have to buy equal or up! – False Or, sometimes...
When Do I Need to Set Up a 1031 Exchange?
updated May 2020 The simple answer is before the relinquished property (“old investment property”) is transferred. This seems very basic; however, it is misunderstood by many investors. Many people think a 1031 exchange is just a special account that can be set up...
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