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Category Archives: 1031 Exchange Replacement Property

How Many 1031 Exchanges is Too Many?

Investors love the flexibility of section 1031 of the tax code. It allows for the exchange of business or investment property to avoid immediate taxation on capital gains. This lets investors re-invest more capital into newly acquired properties, thus growing their investment portfolio more quickly. But is there a downside to a love of 1031 exchanges? Sometimes. If an investor exchanges too many properties during the year (or executes an exchange too quickly after acquiring a property), the IRS may deem the investor a dealer. This presents a problem, because dealers are not allowed to exchange real estate absent proof that the property was held exclusively and strictly for investment. […]

Reviewing the 1031 Basics: The Concept of Boot

The word “boot” is not defined anywhere in Section 1031 of the IRS tax code. Which is surprising, since this is a key component of any 1031 exchange. It is also a term you must be familiar with when considering a 1031 exchange. Boot is an important concept to understand, because it has the potential to negatively influence the tax deferred nature of a 1031 exchange. “Boot” is any value the investor receives that is over and above the value of the relinquished property once the 1031 transactions are completed. Boot can come in the form of money, debt relief or the fair market value of other property received by […]

How to Ensure Full Tax Deferral in Your 1031 Exchange

The whole point of a 1031 exchange is to defer tax liability on the transaction and free up equity to purchase more valuable property and grow investments. So you wouldn’t knowingly make a mis-step that jeopardizes full tax deferral. Unfortunately, at least a quarter of all intended 1031 exchanges end up generating at least partial tax liability. As an investor, it is imperative that you fully understand the requirements for full tax deferral, and avoid the common mistakes that lead to unintended immediate tax liability on your investment transactions. To qualify for full tax deferral, an investor must meet two basic requirements in a 1031 exchange: Reinvest the entire net […]

Can I Exchange My Easement Interest in a 1031 Exchange?

Since section 1031’s introduction back in 1921, the concept of an exchange has continued 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 real estate. Of course, […]

Protecting Funds During a 1031 Exchange

One of the biggest questions any investor should be asking before they settle on a Qualified Intermediary to assist them with their 1031 exchange is “how will my funds be protected?” After all, the QI will take custody and control of the sale proceeds from the relinquished property and hold them in escrow until closing on the replacement property. So it makes sense that a responsible investor would want to know what safeguards are in place to protect their investment resources. (And if you are an investor NOT asking that question, you SHOULD be!) Before picking your QI, be sure to ask them for proof of the following: How much […]

Counting Days in a 1031 Exchange

For anyone who wants to complete a 1031 exchange and defer capital gains taxes on the sale and replacement of investment or business property, timing rules are critical to understand. One big one that often catches investors off guard has to do with elapsed time for the 1031 transactions. Internal Revenue Code requires that you identify your replacement property (or properties) within 45 days of closing on the sale of your old property. But how are those days calculated? The IRS is clear that the 45 days are calendar days, and no dates are excluded from the calculation. If your 45th day falls on a weekend or holiday, that day […]

What Does 95% Have to Do With 1031 Exchanges?

If a 1031 exchange is on your horizon (and why not? It’s a great way to defer capital gains taxes), then understanding the rules of the game is not optional. The IRS is very strict about applying their rules that govern these amazing tax-deferral transactions. No surprise there. One of the most common pitfalls that I see in my work with clients on these type of real estate transactions? Missing the deadline to name possible replacement properties. You may know that you have 45 days from the date you sell your relinquished property to identify possible replacement property. But did you know that you can name more than one? And […]

Is a Self-Storage TIC the Right Investment for You?

Whether you are new to the world of real estate investing or are a seasoned veteran, the idea of a high return, low involvement investment opportunity is always difficult to ignore. And much of the time, these seemingly impossible investments are just that – smoke and mirrors. But not all. If you are searching for a low risk opportunity with reasonable returns and no management headaches, the world of Self-Storage Tenancies in Common might be ideal for you. Imagine a real estate investment opportunity that gives you: Insulation from the fickle nature of single-tenant properties. With hundreds (and even thousands) of tenants within a self-storage facility, it would take a […]

Common Types of 1031 Exchanges

The phrase “1031 Exchange” is often thrown about as a catch-all for any property exchange that qualifies under section 1031 of the IRS tax code. However, there are several different types of 1031 exchanges, each of which brings with it a unique set of IRS rules and requirements. Which exchange type you choose depends on your circumstances and goals. Simultaneous Exchange As the name implies, a Simultaneous Exchange is an exchange where the closing of both the Relinquished Property and the Replacement Property occur on the same day. With this exchange type, the two closings usually occur back-to-back. IRS safe harbor regulations impact this type of exchange. Delayed Exchange When […]

Intro to Delaware Statutory Trusts

A Delaware Statutory Trust (commonly referred to as a DST) is, as the name suggests, a legal entity created as a trust under Delaware state law. A DST is created for real estate investment purposes, and is especially useful in a 1031 exchange. Under a DST, investors each own a pro rata share of the DST itself. The DST in turn holds title to various real estate interests, and distributes any income received from the properties (either through rental income or the sale of the property) to the investors in proportion to their ownership share in the DST. The DST, via its signatory trustee, makes all decisions related to any […]