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Using Reverse Exchanges as a Tool in a Changing Market

Exchange Update

Many investors are aware of their ability to use a reverse 1031 exchange when they are faced with having to close on their replacement property before they are able to close on their sale property; however, reverse exchanges can also be used proactively when tight inventory creates purchasing challenges.

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Extensions Announced for 1031 Deadlines

Exchange Update

Notice 2020-23 (which updates Notice 2020-18, “Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic”), released on April 9, 2020, provides Taxpayers who are currently engaged in a 1031 exchange some relief from the 45-Day Identification and 180-Day Exchange Period deadlines.

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Drop and Swap – Dissolution of Partnerships Prior to Exchanging

Exchange Update

When a partnership is selling property and some of the partners want to cash out and others want to reinvest, it can create complications with a 1031 exchange.  There are a couple of reasons for this.  First, under IRC § 1031(a)(2)(D), partnership interests are not exchangeable.  Second, the taxpayer that sold the relinquished property must acquire the replacement property. For example, if a partnership sells the relinquished property, that same partnership must buy the replacement property.  If individual partners buy the replacement property, it will not be a valid exchange.

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Just the Basics: Tax-Deferred Exchanges Under IRC §1031

Exchange Update

Knowing some basic rules behind Internal Revenue Code 1031 can help investors defer paying capital gain tax on property dispositions, resulting in more money to invest in new property acquisition. Generally, any real property can be exchanged, provided it is held “for productive use in a trade or business” or for “investment” and is exchanged for property of “like-kind” that will also be held for one of these same purposes.

 

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Top Ten 1031 Exchange Misconceptions

Exchange Update

1. Like-kind means I must exchange the same type of property, such as apartment building for apartment building.

All real property is like-kind to other real property. For example, you can trade an apartment building for an office building. To read more about like-kind real estate, click here.

2. My attorney can handle this for me.

Not if your attorney has provided you any non-exchange related legal services within the two-year period prior to the exchange. Click here to read more about qualified and disqualified parties.

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Deferring Tax on Mixed Use Properties

Exchange Update

Utilizing IRC Sections 1031 and 121

When it comes to issues related to capital gains taxes associated with the sale of real estate, there are two primary provisions of the tax code that apply, IRC Section 1031 and IRC Section 121.  Many people are unaware that when a property is used as a personal residence as well as for business or investment purposes, it is a mixed-use property that can benefit from both provisions of the tax code at the same time.

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Seller Financing Strategies and 1031 Exchanges

In this real estate market where financing is sometimes not readily available, sellers who are motivated to sell may offer to finance a portion of the purchase price.  At the closing, the buyer deposits some cash and signs a seller carryback note for the balance.  If structured as an installment sale under IRC Section 453, the seller pays tax on any gain as the payments are received rather than paying tax on the gain in the year of sale for the entire purchase price.

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Understanding 1031 Exchanges with Farms and Ranches

Understanding 1031 Exchanges with Farms and Ranches

Exchangeable Assets, Like-kind Requirement, and Identification Period – Farmer/Investors interested in selling a farm or ranch using a like kind exchange also know as a 1031 exchange should focus on the particular property being sold and purchased in order to maximize various tax tools including the amount of capital gain that they will be able to defer. Understanding the different tax tools can help investors maximize their tax saving and the amount available for re-investment.

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