Serving as Qualified Intermediary
to Professional Advisors
and their Clients since 1989 on Forward, Improvement, Reverse, Parking, Personal Property, Multi Asset and Foreign Section 1031 Exchanges. |
Visit our web site at www.spe1031.com and click on the CHAT Button.
1031 Advisor
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Your Trusted SECTION 1031 EXCHANGES: FAVORITE TRIVIA QUESTIONS I never tire when clients or professional advisors ask a plethora of interesting questions about Section 1031 exchanges. Here are three of my favorites: What is the minimum I must do to have a fully deferred Section 1031 exchange? In order to defer all taxes on an exchange, the owner/exchanger must use all the proceeds from the sale of relinquished property to acquire the replacement property. This includes costs of the sale and fees on the replacement property. Improvements can also be made to the property, as long as they are done prior to the owner receiving the deed. In this case, the Qualified Intermediary is on the deed until all improvements are completed. The exchanger must also replace any mortgage paid off at the sale of the relinquished property with an equal or greater mortgage on the replacement property. An easy way to look at this is akin to checkbook accounting. All the cash coming in goes to the new purchase, and if money goes to the Seller, then this is probably taxable. The required purchase price for the replacement property is equal to the selling price of the relinquished property less the transaction costs of the sale. What are the transaction costs in a Section 1031 Exchange? These transaction costs are limited to those costs directly related to the sale of the relinquished property, excluding property taxes. The most common transaction costs are title insurance fees, exchange service fees, brokerage fees, deed preparation fees, and recording fees. May I replace my single property with multiple properties, or vice versa? Many times an owner may wish to reduce the number of properties he or she owns. A Section 1031 exchange can help them reduce their holdings while avoiding taxes on the sale. The key issue here is the timing of the sales. While selling all the properties at the same time is obviously the best course of action, many times the properties are sold over a period of time. One relinquished property may be exchanged for several replacement properties. It is important that the exchange be part of a unified exchange agreement from the beginning. The 45-day identification rule and 180-day replacement rule begin from the date of the sale of the taxpayer’s relinquished property or properties. Also, the fair market value of the relinquished property or properties must not be more than the fair market value of the replacement property or properties, or the cash received by the taxpayer will be taxed as explained above. The first issue is identifying replacement properties within 45 days. In order to know what you are going to purchase—the property, the purchase price and the amount of ownership (e.g., 50% versus 100% ownership), the exchanger should know how much replacement property he or she needs to successfully identify the replacement property. If the other properties have not sold within the 45 day period, then identifying replacement properties might be a leap of faith. Talk to the professionals at Strategic Property Exchanges, LLC. We understand the complex rules of Section 1031 exchanges, and we can help simplify this information for you and your clients. Stephen L. Robison, Esq., is a Qualified Intermediary and is a full-time practicing tax attorney, who is Board Certified as a Federal Tax Specialist. Mr. Robison and his team of professionals will work with you and your clients. They will creatively and strategically assist you and your clients with the sale or purchase of assets, in order to maximize the tax deferral opportunities. |
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Upcoming Seminars October 15, 2008 October 29, 2008 Indianapolis, IN Advanced Section 1031 Exchanges-Event# 45618 8:30 a.m.-4:40 p.m. |
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(1) Exchange funds are fully insured; (2) Unlimited consultation and tax planning; (3) Protection with Errors and Omission insurance policy; (4) Covered Tax opinion protects client and advisor; (5) Complies with: Circular 230; FASB FIN 48; Section 6662; Schedule M-3; Sabanes Oxley 404; (6) Advisor protection from IRS sanctions and penalties relating to Circular 230; (7) IRS "audit-proof" auditing package included |
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