Articles

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.

Sat
21
Feb

Mark Tait and Carl Stauffer Interview with Gary Gorman

Submitted by Gary Gorman on Sat, 02/21/2004 - 01:00

Intro, with Gary Gorman; 1031 exchange - Do you really know what it is?

Is 1031 a "theory" or a "gimmick"?; "Old and new" vs. "relinquished and replacement"; Gary's background; A standard 1031 - Fred and Sue; How long does it have to be an investment property?; For investment use only; Avoiding or deferring tax?; How does a primary residence become investment property?; §1031 vs. §121? The $250,000 exclusion; Selling the rental condo, then buying the second home.

What about 2nd homes?; Proving investment intent; Documentation: write a letter to your CPA and attorney; Treating it like an investment; Seller/buyer can't touch the money; The in dependant third party: the QI (Qualified Intermediary); Why you want CPAs, tax or accounting professionals to do this; How 1031 benefits the Small Investor vs. the Millionaire.

Wed
15
Oct

Using 1031 Exchanges to Shift Gains Between Tax Years

Submitted by Gary Gorman on Wed, 10/15/2008 - 01:00

As we start to wind down towards the end of the year, now is a good time to point out that 1031 exchanges are a great vehicle to use in shifting gain between two tax years. For example, if Fred and Sue sell their purple duplex on December 1, 2008, their 45-day identification deadline for their exchange is January 14, 2009. Section 1031 of the Internal Revenue Code requires that they send a list of potential acquisition properties to their intermediary no later than, in this example, this date. Failure to do so will terminate their exchange, causing the gain from the sale of their purple duplex to be taxable.

Mon
08
Feb

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

Submitted by The Experts Team on Mon, 02/08/2021 - 20:05
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.

Wed
02
Sep

IRS tightens related - party rules

Submitted by Gary Gorman on Wed, 09/02/1998 - 01:00

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

Wed
18
Jun

Short Sales and 1031 Exchanges

Submitted by Gary Gorman on Wed, 06/18/2008 - 01:00

It seems that every time I turn around, I hear the term “short sales” in connection with real estate. I hear talk of them in the locker room at the gym; I read about them in the newspaper, and I see them on the Six O’clock News. Since short sales are the big topic of conversation right now, naturally we’ve been getting a lot of calls from investors who want to know if they can, or should, do a 1031 exchange in a short sale situation.

Just so we’re all clear on what I’m talking about, a ‘short sale,’ as I use it here in connection with real estate, is ‘the sale of a property for less than what is owed to the bank.’

Wed
17
Sep

How Owner Carry Notes Impact 1031 Exchanges

Submitted by Gary Gorman on Wed, 09/17/2008 - 01:00

In this current climate of lender uncertainty, we’re getting a lot of questions about “owner carry” notes and how they impact a 1031 exchange. Whether you call it seller financing, contract for deed or purchase money mortgage, what we are talking about is the amount of financing 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, 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 you’re uncertain how the $20,000 note would affect it.

Wed
15
Feb

The Role of Debt in a 1031 Exchange

Submitted by Gary Gorman on Wed, 02/15/2006 - 01:00

The role that debt plays in a exchange is probably one of the most misunderstood areas of 1031 law. Many people (including qualified intermediaries, CPAs, and attorneys) believe that you are required to have debt on your New Property in an amount equal to or greater than the debt that was paid off on your Old Property. This is NOT, In fact, a requirement for a 1031 exchange.

The actual requirement is two fold: you must buy equal or up, and you must reinvest all of the cash. Assume for example that you sell a purple duplex for $100,000 and you buy a replacement property for $90,000. You did not buy equal or up; in fact you bought down. As a result, the $10,000 buy-down is taxable—yes, the entire $10,000 is taxable, and you do not apportion any of the original cost of the duplex to this gain.

Mon
10
Jun

1031 EXCHANGES vs. Qualified Opportunity Zone Investments

Submitted by Gary Gorman on Mon, 06/10/2019 - 15:36

The Tax Reform Act of 2017 created “Qualified Opportunity Zones” to promote investments in low income communities across the United States. The Qualified Opportunity Fund, or, “QOF,” was created to give investors capital gains tax reduction or elimination to encourage economic growth in specific areas. There are two similarities between QOFs and 1031 Exchanges: 1. they’re both tax-gain deferral strategies (and sometimes even tax elimination!), and 2. the investments must be made within 180 days from the sale of the Old Property. There’s where the similarities end. If a taxpayer decides to invest in a QOF after starting a 1031 Exchange with a Qualified Intermediary, the access to the 1031 proceeds is limited until one of two things happen: 1. If no replacement 1031 property is identified by the investor by the forty-fifth day of the exchange, the funds can be released on the forty-sixth day of the exchange. OR 2.

Thu
01
Apr

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

Submitted by Gary Gorman on Thu, 04/01/2004 - 01:00

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!

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