1031 News This Week

Thu
01
Jul

Six things you need to know about §1031 - Part 5 The Proper Title-Holding Rule

Section 1031 allows you to roll the gain from the sale of your Old Property to the purchase of your New Property. To do this, you have to jump through certain hoops. We've talked in previous articles about how your property has to be held for investment and that it can not be held for resale.

We've also talked about the requirement to identify potential replacement properties for your exchange and how you have to complete a list of these potential properties within 45 days. We talked about the requirement that whatever you purchase must be on your 45 day list. And then last month we talked about how your money must be held by an independent third party called a Qualified Intermediary (QI) and how you must make sure that the intermediary holds your money in an account separate from other exchanges.

Thu
01
Jul

How Owner Carry Notes Impact a 1031 Exchange

Even though mortgage money is plentiful and interest rates are low, we still get a lot of questions about "owner carry" notes and how they impact a tax-deferred or like-kind exchange. Whether you call it seller financing or contract for deed or purchase money mortgage, what we are talking about is the amount of financing that the seller of a property is willing to help the buyer with.

Let's say that you are selling your investment property for $100,000, and the buyer of your property is able to put up $80,000 in cash (whether from a loan, or his own funds, or both), but the buyer needs you to carry back the difference of $20,000. You want to do a Section 1031 exchange but are uncertain how the $20,000 note would affect it.

Tue
01
Jun

Six things you need to know about §1031 - Part 4 You cannot touch the money

Section 1031 of the Internal Revenue Code allows you to roll the gain from the sale of your Old Property to the purchase of your New Property -- and not pay any capital gains taxes! To do this, you have to jump through certain hoops.

We've talked in Part 1 about how your property has to be held for investment or business use, and that it can not be held for resale (like a developer or fix-&-flips). We talked in Part 2 about your requirement to identify and list potential replacement properties for your exchange within 45 days of the closing of your sale of the Old Property. In Part 3 we talked about the requirement that you purchase your replacement property within 180 days of the sale of your Old Property, and that you must buy at least one of the properties listed on your 45 Day List.

Tue
01
Jun

Rolling Your Condo into a New Development -- Tax Free!

You own a condo in a nicely situated, but somewhat dated, building. Dave Developer comes to you and offers to buy your unit for a reasonable price. What Dave wants to do is gut the building and rebuild it into a modern condominium complex. Or maybe Dave even wants to tear down the building and build a new condominium tower.

You don't mind selling but you don't want to pay tax on the sale. What you would really like to do is buy one of the new units when he gets his development completed in a year or two. How do you do this and not pay the capital gains tax?

Probably the most common and most popular way to get to where you want to be without paying tax is to do a Section 1031 exchange. What is a 1031 exchange and how does it work?

Sat
01
May

Six things you need to know about §1031 - Part 3 The 180-Day Rule

Section 1031 of the Internal Revenue Code allows you to roll the gain from the sale of your Old Property to the purchase of your New Property -- and not pay any capital gains taxes! To do this, you have to jump through certain hoops. We've talked in the past about how your property has to be held for investment or business use, and that it can not be held for resale (like a developer or fix-&-flips). We've also talked about your requirement to identify and list potential replacement properties for your exchange within 45 days of the closing of your sale of the Old Property.

Thu
01
Apr

Supreme Court Hints at TIC Referral-Fee Rules for Real Estate Brokers

Two years ago, the IRS issued Revenue Procedure 2002-22 which blessed Tenant-In-Common, or "TIC" (rhymes with "pick") properties as qualifying for Section 1031 as replacement properties. In the last two years I've watched that industry explode. For example, a recent search on Google under "Tenants in Common" returned about 490,000 hits -- most of them sellers or "sponsors" of TIC properties. Many of our client's real estate brokers are uncertain as to what the ramifications are if they accept a commission or referral fee from a sponsor to whom they refer clients. A recent Supreme Court case would seem to answer this question -- and it isn't pretty!

Thu
01
Apr

Six things you need to know about §1031 - Part 2 The 45-Day Identification Rule

Section 1031 allows you to roll the gain -- and pay no capital gains tax -- from the sale of your Old Property into the purchase of your New Property. To do this, you have to jump through some hoops.

Our second Ñ1031 requirement is that you must formally identify the property that you might want to purchase. Simply stated, from the day you close the sale of your Old Property you have 45 days to file a list of properties you want to buy with your QI (the person or company you designate to handle your exchange).
You can identify up to three properties on your list without limitation. For example, if you sold your Old Property for $100,000, you could list three potential replacement properties for $10 Million each (a total of $30 Million). So long as you identify three or less, there are simply no limitations.

Tue
16
Mar

Handling Depreciation in a 1031 Exchange

It’s tax time again, which means we'll be getting lots of good questions about 1031 Exchanges and tax returns. Easily one of the most common questions we get is how to handle depreciation on the New Property in an exchange.

"Depreciation" is a term for the tax benefit that allows you to recover the cost of a property over a predetermined life. Land is not depreciable, but improvements to it, like buildings, are. If you are not already depreciating your property, you can find great information about it at the IRS website at irs.ustreas.gov/prod/forms_pubs. Publication 946 is particularly good. This article, then, is for taxpayers who are depreciating their Old Property which they've sold, and have acquired a New Property through a 1031 Exchange.

Mon
01
Mar

Six things you need to know about §1031 - Part 1 For Investment Use Only

Section 1031 is an IRS code section that allows you to roll the gain from the sale of your Old Property over to your New Property.

To accomplish this, there are hoops you have to jump through, and the first of these is that both the Old Property you are selling and the New Property you are buying have to be held for investment or for business use. 1031 Exchanges allow the investor to defer paying any capital gains tax on the sale of their real estate. But it's NOT for your personal, primary residence -- it's only for investment or business use properties.

Fri
13
Feb

Pitfalls to Avoid in Group Ownership of 1031 Exchange Property

Two years ago the IRS issued guidelines for taxpayers who wish to buy a small slice of a large property. Their ruling covers groups that are put together by promoters, or "sponsors" and is intended to cover groups comprised of people who don't know each other. These groups are known as "Tenants-In-Common", or "T.I.C.s" and most often called "TICs" (rhymes with "sticks") in the real estate industry.

The ruling sets out the minimum requirements that must be met before the IRS will accept an application for a group's exemption from the partnership rules. Being subject to the IRS's partnership rules would be fatal for a TIC.

Since this ruling was released, the TIC industry has exploded and is easily the fastest growing segment of the real estate industry.

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