Articles

Sat
01
Sep

Exchange Place

Peter McCrea had a client who wanted to sell a piece of undeveloped land in order to invest in a new hedge fund. It was obvious to both McCrea and his client that selling a $5milliion chunk of property with virtually no cost basis would result in a hefty tax bill. So McCrea—an advisor with 1031place.com, a subsidiary of LHO Group in New Canaan, Conn.—suggested instead that his client exchange the property for an income-earning interest in it that could be mortgaged after closing. McCrea's strategy allowed the client to liquidate and reinvest 100 percent of his equity without incurring taxes, retain a real estate allocation with the potential for appreciation, and invest in the hedge fund—thus achieving his main objective.

Tue
16
May

Bankruptcy remote entities and 1031 exchanges

You've just sold your old property in a 1031 exchange for $500,000. You've found the perfect new property, and it's a steal at $2 million. Your exchange intermediary is holding $500,000 for you, and your banker is very receptive to your loan request for the balance of $1.5million. He giving you a break on the loan fee, and the interest rate is better than you hoped to get. There are no structural problems, and a few minor cosmetic changes should allow you to raise the rent a little, giving you a very respectable cash flow. Life is great — until the call…

At first it didn't seem that big a deal; the loan committee approved the loan, but requires that the property be held in what they are calling a bankruptcy remote entity. They want the property held in a separate entity, all by itself. That didn't seem unreasonable, so you called your attorney and hand him set up a corporation to own the property so that you would be protected from liability as well.

Wed
01
Dec

Using 1031s to transfer wealth tax-free

A 1031 exchange is a technique that investors commonly use to transfer property tax-free. However, our sophisticated investors are using 1031 exchanges to transfer large amounts of wealth, tax-free to their children.

This is how it works:

Mom and Dad own a building that is worth $100,000 and is free and clear. Finding a new building worth $150,000 the sell their old building and use a 1031 exchange to buy an undivided two-thirds interest in the new building for cash. Their children buy the other undivided one-third interest.

A year or two later they sell the building for $250,000 of which $166,667 is the parents’ two-thirds share with the balance of $83,333 belonging to the children. Both the parents and the children do 1031 exchanges and buy a new property for $400,000 of which $166,667 (or 42 percent) is the parents, and the balance of $233,333 (or 58 percent) belongs to the children.

Wed
02
Sep

IRS tightens related - party rules

A recent Internal Revenue Service ruling will now reduce taxpayer flexibility when they complete a 1031 exchange by buying property.

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