TEE-Shots Newsletter

I am not done with my exchange, when can I file my tax return?

One of the requirements to have a valid 1031 Exchange is that you must report it on your income tax return. If you haven’t purchased your replacement property when you file your tax return, your exchange will be disallowed.

Here are a few reasons a 1031 QI might commingle accounts:

1. Cutting Corners
It’s easier and cheaper to manage one account with a lot of money than a hundred accounts with a smaller amount of money in each. And with varying amounts in each account!

My QI says my account is segregated. I'm safe, right?

Maybe.

But don’t be fooled: one QI assured his clients that their funds were in a ‘segregated account.’ When pressed, it was discovered what he meant was the company’s operating funds were kept separate, or ‘segregated,’ from all his clients' COMMINGLED FUNDS! That’s a difference without a distinction!

Last week the Senate Finance Committee passed a bill which contains provisions that would affect 1031 exchanges. The bill is titled the "Heartland, Habitat, Harvest and Horticulture Act of 2007."

According to the bill, stock in some mutual ditch, reservoir and/or irrigation companies may qualify for a 1031 exchange. This applies to taxpayers who hold water rights through one of these companies.

This question was asked by one of our visitors at expert1031.com. It made us aware that some terms we toss around regularly aren't necessarily familiar to others. Some people are new at real estate investing, and others have been doing it a long time, but for one reason or another have never encountered the term.

A commingled account is simply this: a lot of different people’s money combined into one account. In regulated industries, like real estate or securities investing, this can be illegal and is certainly unsafe.

Believe it or not, we get asked this question frequently. And the answer is absolutely YES! If you are a “taxpayer,” you are eligible for a 1031 exchange. This includes individuals, LLCs, partnerships, corporations, trusts, or any other legal entity you can think of.

Of course, just because you are a taxpayer, it doesn’t automatically mean you can do an exchange.

The usual 45- and 180-day deadlines have been extended due to August storms in some parts of the country. The affected states include: Wisconsin, Oklahoma, Ohio and Minnesota.

The IRS has issued an extension for the following counties:
Wisconsin: Crawford, La Crosse, Richland, Sauk and Vernon
Oklahoma: Blaine, Caddo and Kingfisher
Ohio: Allen, Crawford, Hancock, Putnam, Richland and Wyandot
Minnesota: Fillmore, Houston, Olmsted, Steele, Wabasha and Winona

Section 1031 doesn't just 'happen' to lucky real estate investors. There are things you can proactively do to make sure your real estate investment is '1031-exchangeable' when the time comes to sell.

Here are a few tips:

I am selling a property that is in my name but I want my LLC to take title of my new property. Can I do this?

If your LLC is a single member LLC, the answer is yes. A single member LLC is one which has only one member or owner. It is called a “disregarded entity” by the IRS, which means that it is an entity that holds legal title to the property, but is not required to file an income tax return. This means that all of the details pertaining to that property are reported in your tax return since you are the single member.

The IRS recently issued a ruling concerning related-party 1031 exchanges (PLR 200728008). This transaction occurs when a 1031 exchanger either sells to or buys from a family member or his business entity. The most conservative approach is to ensure that both the exchanger and the related-party both end up with property, and neither ends up with cash.