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Monthly Archives: October 2017

Do You Know About IRS Private Letter Rulings?

Do You Know About IRS Private Letter Rulings?

If you are an investor interested in conducting 1031 exchanges, you should be familiar with Private Letter Rulings (PLR) issued by the Internal Revenue Service. While you will likely never seek a PLR yourself, you will often rely on other rulings for guidance when conducting your own exchange. A Private Letter Ruling is a written statement issued by the IRS in response to a taxpayer’s formal request for guidance. The PLR interprets and applies tax laws to a specific set of circumstances. Given the potential complexity of 1031 exchanges, it is not difficult to understand why so many investors seek out PLRs for their proposed transactions. When a PLR is […]

Important Deadlines for 1031 Exchanges

Important Deadlines for 1031 Exchanges

If you’re thinking about completing a 1031 exchange for investment or business real estate, you should have a thorough understanding of all the deadlines involved. Failing to meet even one can jeopardize the tax-deferred nature of your transactions. The good news is there are really only two key deadlines to keep in mind, and compliance is not complicated. It does, however, require due diligence and careful counting of calendar days. You must identify or receive your replacement property within 45 days of transferring legal ownership of your relinquished property You must receive title to your replacement property within 180 days of transferring legal ownership of your relinquished property Your qualified […]

Beware This Unexpected Source of Boot In A 1031 Exchange

Beware This Unexpected Source of Boot In A 1031 Exchange

When it comes to 1031 exchanges, the key to full tax-deferral of capital gains is avoiding any real or constructive receipt of sale proceeds or other income related to the overall transactions. It sounds easy enough in theory, but many investors unwittingly violate this rule – and end up with taxable funds – when it comes to prepaid rent and security deposits on relinquished rental properties. In a typical, non-1031 exchange closing, any prepaid rents or security deposits held by the seller are credited to the buyer at closing. It is a clean way to do the transfer of these assets related to the sold real estate. However, the rules […]

What Is A “Drop And Swap” In A 1031 Exchange?

What Is A “Drop And Swap” In A 1031 Exchange?

When real property is held by a partnership or limited liability company, often disagreements can arise among the partners as to how to handle net proceeds when the property is sold. Some investors want to conduct a 1031 exchange while others simply want to sell for cash. When competing interests are in play, how can everyone be satisfied? One answer is what is known as a “drop and swap.” In such a transaction, before the exchange the property ownership title is changed to reflect individual partner names and their partitioned interests rather than the partnership or LLC itself. This title change is the “drop.” Thereafter, the exchange occurs and some […]

Six Tips for Identifying 1031 Exchange Replacement Property – Part 2

Yesterday, we shared with you some tips on properly identifying replacement property in your exchange. Today, we conclude this series with a few final thoughts. Each should become a requisite part of your process, so that your exchange does not fail because you made an error in identifying replacement property. Manner Of Identification – This must be in writing and signed by the investor, and the property must be unambiguously described. This generally means identified by address or legal description. If the property is one where the investor is acquiring less than 100% interest, the percentage share of the acquisition must be identified, too. Provide Information To The Right Person […]

Six Tips For Identifying Your 1031 Exchange Property – Part 1

The IRS is strict when it comes to applying the rules governing 1031 exchanges. Every year, hundreds of proposed exchanges fail because the investor fails to meet one of the requirements set forth in the code. One of the biggest areas where mistakes are made? Identifying the replacement property. To make sure you don’t make a misstep here and jeopardize your next exchange, we offer our top tips for identification. Tomorrow, we will share our final tips. 3 Property Rule – There are different rules that set forth how many possible replacement properties may be identified by an investor, but most follow this rule. It allows an investor to identify […]

Yes, You Can Use a 1031 Exchange for a Vacation Home

For many individuals, the sale and replacement of a second home will incur capital gains taxes. The good news is that, if appropriate rules are followed, these homeowners can benefit from the tax-deferral benefit of a 1031 exchange. The rules governing such transactions are explained in Revenue Procedure 2008-16. Here the IRS offers clarification to a previously confusing section of 1031 code. As of March 10, 2008, vacation home exchanges will qualify if all of the following are met: Relinquished Property The owner must have held the vacation home for at least 24 months prior to the exchange. For each 12-month period preceding the exchange, the vacation home must have […]

Key Vocabulary for 1031 Exchanges

Key Vocabulary for 1031 Exchanges

If you’re new to the world of section 1031 of the IRS Tax Code, the terminology that comes along with these tax-saving exchanges can be confusing. To help you understand the phrases you will undoubtedly hear if you choose to complete a tax-deferred 1031 exchange, here’s a list of the key terms you will come across. Like-Kind: A term that refers to the nature or character of the property being exchanged. In order for the exchange to qualify for tax-deferred status, both the relinquished and replacement property must meet the IRS definition of like-kind. Boot: This is the fair market value of any non-qualified property you receive during the exchange. […]

How Will Tax Reform Impact Commercial Real Estate Markets?

It’s no secret that any tax reform coming out of Washington may include repeal of popular Section 1031. This section of the tax code is what allows real estate investors to sell one property and reinvest the proceeds into “like-kind” property and avoid capital gains taxes. So if reform does axe this popular tax benefit, it makes sense that such an action could have significantly negative affects on the commercial real estate market. Read here for a detailed analysis of how commercial real estate brokers are interpreting the impact of any such tax reform.