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1031 Exchange
1031 Exchange ManualA 1031 tax-deferred exchange allows you to defer capital gains taxes on real estate bought and sold for investment purposes. Despite its tax-saving benefits, the 1031 exchange process can create issues for commercial real estate investors. Existing buildings and sometimes vacation homes can be eligible for these transfers. The IRS code explains the properties eligible within the 1031 exchange. In a 1031 exchange, the like-kind property exchange process must be achieved within 180 days. Further, a property must be identified within 45 days of the closing of the first. In addition, all parties must communicate with one another as to the replaced property and the relinquished property. Also, the qualified intermediary must be put in place to help administer the proper transfer of funds. In part because they are not required to be licensed, qualified intermediaries are not always scrupulous and even those very skilled in real estate have been the victims of duplicitous dealings. Introduction to 1031 Exchanges A 1031 Exchange is a Powerful Tax Deferral Opportunity The Basic Rules For A 1031 Exchange The Relinquished Property Must Be Qualifying Property Simultaneous Exchanges Delayed Exchanges - The Exchange Process And Time Clocks The Basic Approach Reverse Exchanges – The Exchange Process and Time Clocks The 180-Day Rule for Reverse Exchanges The Role of the Qualified Intermediary The Role of the Qualified Intermediary is Essential The Rules of "Boot" in a Section 1031 Exchange Types of Boot Seller Carrybacks and Dispositions Basic Incompatibility with 1031 Exchanges The Two-Year Holding Period Requirement Multiple-Asset Exchanges and Personal Residences Types of Multiple-Asset Exchanges Types of Personal Property Exchanges Partnership and Co-Ownership Issues Partnership vs. Co-Ownership Tenancy In Common Syndicated Investments What Is a Section 721 Exchange into an UPREIT? Real Estate Investment Trusts with publicly-traded stock What Realtors Should Know About 1031 Exchanges Realtors are Often the First to Recognize the Potential Benefits to a Seller Introduction to 1031 Exchanges A 1031 Exchange (Tax-Deferred Exchange) Is One Of The Most Powerful Tax Deferral Strategies Remaining Available For Taxpayers. Anyone involved with advising or counseling real estate investors should know about tax-deferred exchanges, including Realtors, lawyers, accountants, financial planners, tax advisors, escrow and closing agents, and lenders. Taxpayers should never have to pay income taxes on the sale of property if they intend to reinvest the proceeds in similar or like-kind property. The Advantage of a 1031 Exchange is the ability of a taxpayer to sell income, investment or business property and replace with like-kind replacement property without having to pay federal income taxes on the transaction. A sale of property and subsequent purchase of a replacement property doesn't work, there must be an Exchange. Section 1031 of the Internal Revenue Code is the basis for tax-deferred exchanges. The IRS issued "safe harbor" Regulations in 1991 which established approved procedures for exchanges under Code Section 1031. Prior to the issuance of these Regulations, exchanges were subject to challenge under examination on a variety of issues. With the issuance of the 1991 Regulations, tax-deferred exchanges became easier, affordable and safer than ever before. The Disadvantages of a Section 1031 Exchange include a reduced basis for depreciation in the replacement property. The tax basis of replacement property is essentially the purchase price of the replacement property minus the gain which was deferred on the sale of the relinquished property as a result of the exchange. The replacement property thus includes a deferred gain that will be taxed in the future if the taxpayer cashes out of his investment. Exchange Techniques. There is more than one way to structure a tax-deferred exchange" under Section 1031 of the Internal Revenue Code. However, the 1991 "safe harbor" Regulations established procedures which include the use of an Intermediary, direct deeding, the use of qualified escrow accounts for temporary holding of "exchange funds" and other procedures which now have the official blessing of the IRS. Therefore, it is desirable to structure exchanges so that they can be in harmony with the 1991 Regulations. As a result, exchanges commonly employ the services of an Intermediary with direct deeding. Exchanges can also occur without the services of an Intermediary when parties to an exchange are willing to exchange deeds or if they are willing to enter into an Exchange Agreement with each other. However, two-party exchanges are rare since in the typical Section 1031 transaction, the seller of the replacement property is not the buyer of the taxpayer's relinquished property. The Basic Rules for a 1031 Exchange The Relinquished Property Must Be Qualifying Property. Qualifying property is property (or equipment) held for investment purposes or used in a taxpayer's trade or business. Investmen
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