Articles

Wed
05
May

1031 Identification Issues in a Hot Real Estate Market

1031 Identification Issues in a Hot Real Estate Market

Section 1031 is an IRS code that allows you to defer real estate capital gains taxes (in some cases, a lot of capital gains taxes). The rules aren't impossible to follow, but they aren't easy, either.

One of the rules that causes a lot of angst, especially in a fast-moving real estate market like we have now, is the requirement that you have forty-five days to make a list of replacement properties you might want to buy. Anything you purchase to complete your exchange must be on that property identification list. You create your identification list on a form provided by your Qualified Intermediary (the 1031 specialist the law requires to guide you through the process).

Mon
15
Mar

TALES OF THE TEXAS EXCHANGERS! IRS deadlines extended due to winter storms

The Internal Revenue Service recently announced that Texas taxpayers—including 1031 exchangers—can have up to June 15, 2021 to file returns, identify replacement property, purchase replacement property, or make other payments due to the chaos caused by February’s winter storms. 

For affected Texans, FEMA has issued a disaster declaration for the entire state. Other tax-related accommodations can be made for taxpayers in other states impacted by these winter storms. A list of eligible localities can be found at irs.gov on their disaster relief page.

Mon
08
Feb

Trump's Out and Biden's In—What does this mean for 1031 Exchanges?

Trump's Out and Biden's In—What does this mean for 1031 Exchanges?

Finally, the dust appears to have settled, the drama has ended, and the Biden regime has begun. So where are we now, and what do I think the 1031 Exchange industry can expect in the foreseeable future?

I've been writing a prediction article every year or so since about 1998—especially when we've had a Presidential regime change. I've struggled with writing this article more than any other because, frankly, I don't have a clear vision of what's going to happen next. So I'm going to start with big, broad categories, then break them down into smaller details. In the end, I'll try to tie them all together into a prediction of where the 1031 industry is going.

Tue
14
Jul

1031 Exchanges and Partnership Challenges

Partnerships holding real estate investments face major challenges when some partners want to do a 1031 exchange while others want to cash out at the sale. But there are a number of options that can allow all the partners to get what they want. Timing and planning are required to meet both the IRS partnership and 1031 exchange rules. Here are just a few of those strategies:

1. The Drop and Swap Method. Real estate investment partnerships can be distributed to the partners as a separate “tenancy in common interest,” and the partnership entity is dissolved. Property is then held for at least a year prior to the sale and each tenant in common owner can either cash out or participate in individual 1031 exchanges. There are stringent IRS tenant in common ownership requirements that must be met per Revenue Proc 2002-22, including annual management agreements.

Fri
05
Jun

SOLD! Tax Strategies for Selling Vacation Property

Due to economic factors or life changes, investors who have held vacation rental property for many years can face significant tax liabilities when they sell it. Federal long term capital gain tax rates can be anywhere from 15 to 20%. The unearned income tax rate is 3.8%, and a depreciation recapture at 25% could be incurred. Additionally, state tax rates will also apply. Adding it all up, a potential tax liability upwards of around 39% can come as a rude surprise for most investors. 

So what other options do investors have to limit or defer their tax liability? One option is to convert the use of the property into your primary residence. Another is to do a 1031 Exchange.

Fri
10
Apr

§1031 & Corona Virus Update

Happy Good Friday 1031 Clients and Friends! I hope this email finds you well.

Good news: the IRS has granted extensions for 1031 Investors who have like-kind exchange deadlines between April 1, 2020 and July 15, 2020. The IRS issued new guidance on April 9, 2020 that granted all taxpayers, including “trusts, estates, corporations and other non-corporate tax filers” a filing extension until July 15. Notice 2020-23: https://www.irs.gov/pub/irs-drop/n-20-23.pdf is an update to Notice 2020-18.  The new Notice 2020-23 doesn't address like-kind exchanges specifically, but tax experts agreed they are covered under the broadening of the extension. This give investors with a 45-Day identification deadline or a 180-Day Exchange Purchase deadline between April 1, 2020 and July 15, 2020 an automatic extension to July 15, 2020.

Mon
06
Apr

Allowable and Unallowable 1031 Exchange Closing Costs

There are always issues with closing costs associated with 1031 exchanges. All exchangers want to have their closing costs paid with 1031 proceeds without creating a taxable event. Some closing costs paid by exchange proceeds are allowable by the I.R.S., while others are taxable. The I.R.S. Revenue Ruling 72-456 specifies, for example, that if exchange funds are used to pay a broker’s commissions, it does not ruin a 1031 exchange. 

Here’s a list of specific exchange expenses that are allowed by most tax advisors:

Wed
01
Apr

Working Through the Crisis

The 1031 Exchange Experts, LLC & COVID-19

Working Through the Crisis

We must face a harsh fact: it’s a scary time.

We’ve recently fielded lots of calls with concerns about the economic situation caused by this worldwide pandemic. We hear them, and we feel them.

Fear is normal in times like these, and to be realistic, the unexpected is still ahead. That can be paralyzing. But we should take heart: EVERY challenge America has ever faced was unexpected, unwritten, and unique to world history. And we have overcome.

Fri
02
Aug

How to Rescue a Multiple-Property Exchange

Sometimes an investor exchanging multiple Old Properties into a single New one can have timing issues if one of the sales falls through. For example: say an investor begins the 1031 exchange process by selling two Old Properties, but one of the sales falls through due to an inspection or mortgage loan issue. If this failure happens right before the New Property purchase date, it can cause major dilemmas.

But there’s a solution! To gain an extra 180 days to complete the sale of the Old Property you can set up a Reverse Exchange within a simple deferred exchange transaction, thus saving your exchange!

Mon
01
Jul

Dealer-Developer Issues Can Jeopardize Your 1031 Exchange

If you do a number of 1031 exchanges every year, you should be aware of the Dealer/Developer issues. To qualify for a 1031 exchange, a taxpayer must be able to prove their “intent” at the time of purchase was to hold the property for investment.

According to the I.R.S., real estate held as “stock in trade or other property primarily for sale” is excluded from the tax benefits of Section 1031. Listed here are some factors the IRS uses to determine if there was intent to hold property for investment:

• Length of Ownership The nature and purpose for buying the property.

• Consistent with Investment Activity Has the tax-payer’s investment income and expenses on tax returns been consistent with investment activity? (It’s a good idea to NOT file a Schedule C for the 1031 property, or classify it as “inventory” or “held for development.”)

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