Patricia A. Flowers, CES®
New England: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island & Vermont
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What My 1031 Customers Are Saying
I wanted to let you know how very impressed I’ve been with IPX and the knowledge / professionalism of all the individuals we worked with. I especially want to thank you for getting me through the process (basically holding my hand right from the start). You really did a great job explaining everything and answering my sometimes off the wall questions !! During our first conversation I said that this was very overwhelming and that my head was spinning which you replied, ” don’t worry you’d get me through it and after my 1st 1031 I’d want to do it whenever possible “. Very true words !!
This was our first time doing a 1031 exchange and had a general knowledge of how it would go but there were complexities along the way that we didn’t know. Patty was great in helping us know those complexities and walk us through the process with great clarity. There were times in our deal when things might have fallen through but Patty was able to offer her experience ideas on how the deal could still work (reverse exchange). In the end it went through the way we had hoped so it was more straightforward. All said, I would highly recommend her and her team to anyone looking for help in the process and next time we have an opportunity we will have her help us again.
Patty Flowers is the consummate business professional – I reached out to her for help executing my first real estate exchange, and she was prompt, patient, informative, supportive, and led me by the nose through the process. Our second exchange was flawlessly executed. Frankly, if all of my business engagements were with individuals as prompt, knowledgeable, responsive, and professional as Patty, life would be very good indeed. I look forward to a continued relationship with she and her colleagues, and recommend her to anyone seeking exchange services.
1031 Resources & Information
What are the benefits of doing an exchange?
The primary reason why investment property owners exchange is to save on the capital gains taxes due in the year of sale. Those taxes could be upwards of 25-30% or more, depending on where the property is located. Once that money is paid to the IRS and State revenue authorities, it is gone forever. Participating in a 1031 Tax Deferred Exchange allows you to keep that equity gained working for you and use those funds to purchase new investment property. Other reasons to exchange are for those who want to grow or diversify their real estate portfolio or those that want to consolidate. To grow or diversify the real estate portfolio, taxpayers split their relinquished property sale proceeds for down payments on several new investment properties. Taxpayers who want to consolidate, sell 2 or 3 Relinquished Properties and exchange into 1 larger investment property that may be in a better location, is easier to manage, and/or will produce more income. Estate planning is also a major factor in exchanging: property owners have worked very hard through the years and want the benefit of gains to be available in the future for their loved ones. Selling and buying in a 1031 maintains the property’s equity, then later in life when the taxpayer passes away, the basis in the property owned moves up to the value of the property at date of death and passes to the heirs at that same value. In turn when the heirs receive the property from the estate, and sell it for the value received, they will have no capital gains tax due… the equity is preserved. This is referred to as “stepped up basis” or “a step up in basis”… making 1031 Exchanges a great estate planning tool! In any case, IPX1031 is the Qualified Intermediary needed to open your 1031 Exchange account in order to defer the capital gains taxes otherwise due from the sale, and keep that money working for you! Call me at (617) 899-4718 to get started.
How do I know if a 1031 Tax Deferred Exchange is right for me?
When deciding whether to exchange, a taxpayer should review their basis in the investment property, how much in improvements they have made over the years that can be added to that basis, and how much the property is currently valued at if they decide to sell. Knowing your gain and what you will pay in capital gains tax at the state and federal level will allow you to make an informed decision as to whether you are willing to have a straight sale, receive the proceeds and pay the taxes due, OR to structure your sale as a 1031 Exchange to defer the 25-30% (or more) in taxes, using the taxes saved as equity to increase the investment in other real property.
Can I use funds in my 1031 Exchange account for improvements on the new property I intend to purchase?
Yes! Under the 1031 Tax Code, the main premise of an Improvement/Build-to-Suit (BTS) Exchange is that once the taxpayer takes title to the Replacement Property, the value of that exchange property is final, and used for reporting at tax time. Therefore if the exchanger is buying down in value but wants to make immediate physical improvements to the new property and have those construction funds count in the reported Exchange dollar values, IPX1031 as the Qualified Intermediary (QI) must become the Exchange Accommodation Titleholder (EAT), temporarily taking title to the new property while improvements are made, for a maximum of 180 days. This is referred to as a “parking” transaction. An Improvement Exchange is well worth it for investment property owners who will incur high capital gains/depreciation recapture tax upon their investment property sale, benefiting from the increase in value of the new Replacement Property before taking title. Planning ahead is key, and each taxpayer scenario is different. IPX1031 is available to suggest the best structure and work with you through the entire process.
If I am paying off my mortgage at the sale closing doesn’t that count as a part of my exchange?
Paying off a mortgage at the sale closing does not reduce the value of the Replacement Property needed to be purchased to be fully deferred. Since the gain from an investment property sale is calculated by subtracting your adjusted basis from the net sale price, the gain is actually the same whether you have debt to pay off at the sale closing or not. That is why the IRC §1031 regulations state to be 100% tax deferred you must use all the sale proceeds AND match the debt paid off with new cash and/or new debt in the new replacement purchase.
How does the Massachusetts Claw-back provision effect my 1031 Exchange ?
The great benefit of participating in a 1031 Exchange is that the taxpayer can sell and buy investment real estate anywhere in the U.S. and defer up to 100% of the state and federal capital gains tax otherwise due from sale. Many investors sell in one state and purchase in another. Later at a time when the taxpayer decides to sell their investment property outright, the capital gains taxes are due. In most cases taxes would be due to the state in which the final property sold is located. However some states including Massachusetts have a “claw back” provision (state regulation MA 830 CMR 62.5A.1 (3)(d) “Non-Resident Income Tax” Section). In this case the claw back allows Massachusetts to collect the capital gains tax on the previous appreciation gained during the Mass. property ownership that was previously deferred through the tax exchange. They refer to this as “MA sourced income.” Taxpayers should speak to their tax advisor to understand how this claw back regulation may impact them. Remember, as long as you continue to exchange from one investment property to another, the Massachusetts capital gains tax will remain deferred… you get to keep that equity working for you!
When I do an exchange, why can’t I get my principal (or basis) back out?
Often investment property sellers want to “pay themselves back” at the sale closing for their initial down payment and/or any personal funds they had used to make improvements over the years of ownership. Unfortunately, any cash received at the sale closing, for any reason, will be considered “Boot” and taxed up to the amount of realized gain from the property sale. It should be noted that receiving some cash at closing will not automatically disqualify the entire sale from the tax deferral. It is possible to have a partial tax payment due and partial tax savings, referred to as a “Partial Exchange”.
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Patty Flowers & IPX1031 are a winning combination.
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With an office near Boston, IPX1031, the nation’s largest exchange facilitator and accommodator, provides industry leading exchange services including guidance, expertise, security and key information on 1031 Exchange rules, regulations and strategy. 1031 Exchange expert, Patty Flowers offers you customized solutions to defer capital gains tax and maximize equity in your 1031 like kind investment property.
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