Articles

Tue
01
Mar

Everything's Relative ...except in 1031 exchanges

Submitted by Gary Gorman on Tue, 03/01/2005 - 01:00

One of the trickiest rules to figure when structuring a 1031 exchange is the rule involving exchanges between related parties. Can you defer capital gain taxes with an exchange if you sell a property you own to a relative? What if you sell your property to a third party but buy your replacement property from a relative? What if you and a relative wish to swap properties? The answer to all these questions is .....sometimes. The reason for that cop-out answer is because the IRS is a little unclear about when it will and will not allow a related party exchange.

So, what is a related party? In IRS terms, a related party includes certain blood relatives (like siblings and children), spouses, and business entities you may own, like corporations or partnerships.

Wed
15
Mar

IRS Clamps Down on Commingled Accounts in 1031 Exchanges

Submitted by Gary Gorman on Wed, 03/15/2006 - 01:00

The IRS has just released proposed regulations dealing with the treatment of interest earned by Qualified Intermediaries while they hold a client's 1031 exchange proceeds. The goal of these regulations appear to be designed to curtail the practice of holding exchange proceeds in commingled accounts.

In a 1031 exchange, you can't touch the money from the sale of your Old Property, and you are required to use a Qualified Intermediary to hold your money until you purchase your New Property. There are two ways intermediaries can hold your exchange proceeds: they can pool all of their clients' money into a single account (called a commingled account); or they can put each client's money in a separate account.

Thu
01
Jul

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

Submitted by Gary Gorman on Thu, 07/01/2004 - 01:00

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.

Fri
14
Mar

1031 Reverse Exchanges: How exactly do they work

Submitted by Gary Gorman on Fri, 03/14/2003 - 01:00

Up until the IRS approved Reverse 1031 Exchanges in a ruling (Rev. Procedure 2000-37) issued in September, 2000, many people, especially tax professionals, were skeptical of them. Now, however, even though there is lots of talk about them, many people really don't know exactly what a Reverse Exchange is and how it works.

Reverse Exchanges arise when you want to (or need to) buy your New Property before you've sold your Old Property. The problem is that the IRS will not let you be in title to both your Old Property and your New Property at the same time. This situation, then, gives rise to a Reverse Exchange.

Wed
21
May

Where's Your Commingled Exchange Account Invested?

Submitted by Gary Gorman on Wed, 05/21/2008 - 01:00

Interest rates on separate exchange accounts are currently in the toilet. So it’s not surprising that taxpayers who are doing 1031 exchanges are intrigued with Qualified Intermediaries that offer a high rate of interest on their exchange accounts. But how are they earning those rates? If you use them to do your exchange, what will they be investing your money in? Will you even know where your money is?

Most intermediaries commingle their client’s money. By commingle, I mean the pooling of all the clients’ exchange funds into one account. The benefit of pooled accounts is that the intermediary is investing a larger amount of money, and is therefore able to obtain a greater return. Just look in the business section of your Sunday paper: you’ll notice the difference in interest rates on $1,000 invested in a money market account versus $1 million invested in a CD.

...A 1031 exchange is a relatively short-term event, but losing your money could be forever...

Sun
01
Aug

The Reverse Exchange -- A Useful Tool

Submitted by Nace Cohen on Sun, 08/01/2004 - 01:00

In a market this hot, if you want to do a 1031 exchange you have quite a dilemma. You would like to exchange your highly appreciated Old Property, but finding replacement property in time is difficult. In a straight 1031 exchange, you have 45 days from the date of sale to identify potential replacement property and 180 days to close the purchase. There are no extensions to these time frames! Property not identified or purchased in time will toast your exchange, and you'll pay tax on the sale of your Old Property.

We're currently in a market where inventory is in short supply, and if you don't act fast, properties are gone. If you're hesitant to sell your Old Property first for fear of not being able to find the perfect New Property in time, consider doing a "Reverse Exchange."

Wed
20
May

What's the future of 1031 exchanges?

Submitted by Gary Gorman on Wed, 05/20/2015 - 01:00

There is still talk coming out of Washington, DC, concerning tax reform of some type that might yet happen during the two and a half years Obama has left in his term. Certainly the landscape has changed now that the Republicans control both the House and the Senate, and yet the talk continues. It seems unlikely at this point that Congress and the White House would ever agree on any type of individual tax reform; however there seems to be some middle ground for reforms involving entities (corporations, partnerships, trusts, etc.).

Mon
15
Mar

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

Submitted by The Experts Team on Mon, 03/15/2021 - 21:39

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.

Tue
30
Sep

What You Need to Know to Teach a One Hour 1031 Exchange Class

Submitted by Gary Gorman on Tue, 09/30/2003 - 01:00

The 1031 Exchange area is so broad that you could spend days teaching the details of the topic. Most of you, however, want to simply introduce the topic to your students, and you should be able to do that adequately in about an hour. This article gives you an outline and the basic concepts that will let you do just that.

Fri
05
Jun

SOLD! Tax Strategies for Selling Vacation Property

Submitted by Mary Lou Schwab on Fri, 06/05/2020 - 13:53

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.

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