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Category Archives: 1031 Exchange Replacement Property

How Soon Is Too Soon To Look For 1031 Exchange Replacement Property?

The simple answer is NEVER. The truth is, many investors wait until they close on the sale of their relinquished property before starting to think about finding replacement property. Given the strict IRS deadline of 45 days from the date of selling your relinquished property to identify possible replacement properties, you can quickly see why waiting can lead to critical issues down the road. So perhaps you think since you can name multiple properties, what’s the big deal? After all, you still have another 135 days to buy something and still meet the IRS’s other deadline of 180 days to close on the replacement property. And if you can do […]

The “Same Tax Payer” Rule for 1031 Exchanges

When it comes to completing a valid 1031 exchange, it’s all about rules. Knowing them. Understanding them. Following them. The IRS is not a very forgiving entity when it comes to bending rules or even taking a generous rule towards interpreting compliance with their complicated tax code. So to maximize your chances of successfully deferring capital gains taxes, it pays to understand all the rules surrounding them. One of the trickier ones has to do with who is the named entity in the sale and purchase of exchange-related property. In the eyes of the IRS, the tax return and the name on the title of the property being sold must […]

The Greater or Equal Value Rule for 1031 Exchanges

As if there weren’t enough rules to follow when completing a valid 1031 exchange (45 days to identify replacement property, 180 days to close, etc.), the IRS throws another wrench into the works. It has to do with the value of the replacement property. In order for your exchange to be valid and completely avoid paying capital gains taxes on the sale of your relinquished property, the IRS requires the net market value (including equity) of your replacement property to be the same as, or greater than, the property you sold. Otherwise, you are not able to defer 100% of the capital gains taxes that would be due. For example, […]

Can I eliminate capital gains taxes altogether with a 1031 exchange?

This is, by far, one of the most common questions I get asked when working with investors who want to complete a 1031 exchange. They may have only a limited knowledge of how an exchange works, but have heard through the grapevine that it is a great way to keep the tax man at bay when selling investment or business property. I am always hesitant to offer a black and white answer to this question, though. Like so many things related to taxes, the real answer is…it depends. The first thing to understand is that when you complete a valid 1031 exchange (meaning you’ve crossed all the T’s and dotted […]

Can my easement interest qualify for a 1031 exchange?

Although section 1031 of the IRS code has been around since 1921, the concept of 1031 exchanges continues to evolve. And because the code is not crystal clear on some concepts, investors often seek guidance from the IRS – in the form of Private Letter Rulings – about non-traditional exchanges. One issue that comes up with more regularity than you might think is the concept of exchanging easement interests (conservation or agricultural). First, can they be considered as “like-kind” to real estate? Second, do they qualify for an exchange. The IRS issued several private letter rulings finding that certain types of conservation and agricultural easements are, in fact, “like-kind” to […]

Tenancy in Common Explained

Tenancy in Common (TIC) is a way for two or more individuals to have an undivided fractional ownership interest in a single piece of real property. With a TIC, each owner has individual rights and obligations related to the property. These rights equal the proportionate share of the owner’s interest. Tenancy in Common is a popular way for individuals with shared interests outside of property ownership to continue that relationship with their joint property ownership. Having an ownership interest in a TIC gives an investor the right to his or her proportionate share of net income, tax benefits and appreciation. The TIC owner is treated similarly to a fee simple […]

How to Make Your Primary Residence Eligible For a 1031 Exchange

Section 1031 of the IRS code explicitly prohibits private residences from eligibility for a 1031 exchange. So what can you do if your home has extensive equity and you want to avoid capital gains tax liability when you sell? One option is, of course, to use the 250,000/500,000 exclusion permitted by tax code on the sale of your primary residence. But that still leaves any equity above and beyond that amount (after you’ve subtracted the original purchase price and any capital improvements) exposed to capital gains taxes in the year of the sale. If you want to ensure tax deferral of all capital gains taxes, then a bit of foresight […]

What Can (and Can’t) Be Traded In A 1031 Exchange

Although the provisions of Section 1031 have been around for a long time, there are still investors who are not familiar with the tax savings offered by this powerful piece of tax code. And even for those investors who have heard of a 1031 exchange, their knowledge rarely goes beyond the basics. In fact, many investors believe (wrongly) that only real property can be exchanged in these transactions. This is not true. While there are some business or investment interests that are excluded from section 1031 qualification, there are many types of “property” that can be exchanged. Understanding what can (and can’t) be traded opens up a world of possibilities […]

Adding the Right Professional to Your Team

Financial planners, Certified Divorce Financial Advisors and CPAs all face a recurring issue – a client who wants or need to diversify their portfolio beyond the professionals’ existing capabilities. As more and more individuals take a more active interest in controlling their financial investments, this scenario plays out with increasing frequency. When your client starts this conversation with you, what is the right response? For too many financial professionals, the fear of losing their client has them extending themselves into areas where they don’t have the requisite expertise. Or worse, trying to steer their clients into unsuitable holdings, simply to keep them on board. But what if there was a […]

1031 Exchanges – What’s With All The Rules?

When it comes to completing a successful 1031 exchange, it is all about following the rules. Rules related to timing are the biggies, followed closely by naming replacement property. In the eyes of the IRS, missing a single deadline – by even one day – is enough to invalidate the entire exchange. Likewise, failing to property name the replacement property ultimately acquired is additional grounds to veto the exchange and cause capital gains taxes to be immediately due. To avoid application of this rather draconian approach, every investor must understand these basic 1031 exchange rules. 45-Day Rule for Identification. This rule requires that the investor either close on the purchase […]