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Category Archives: 1031 EXCHANGE

Reviewing 1031 Basics: What is Boot?

Even though you will not find the word “boot” anywhere in Section 1031 of the IRS tax code, it is something you must understand if you are contemplating a 1031 exchange. Why? Because it has the potential to negatively influence the tax deferred nature of your transactions. “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 the investor in an exchange. Money – This includes any cash (or cash equivalents) received by the investor. Debt […]

Is it All or Nothing with a 1031 Exchange?

One question I’m often asked is whether an investor can conduct a partial 1031 exchange. I am happy to answer with a definitive yes. After all, a 1031 exchange offers a very flexible approach to trading investments to maximize long-term growth, and this includes opting to complete a full or partial exchange. Allowing for a partial exchange permits the investor flexibility to address current needs. A partial exchange allows the investor to choose whether to defer some capital gains tax and pay tax on either (a) cash proceeds received or (b) debt reduction. Either of these scenarios result in boot being received by the investor. Boot – defined as any […]

Which Type of 1031 Exchange is Right for You?

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 actually several different types of 1031 exchanges, each of which brings with it a unique set of IRS rules and requirements. 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 the Replacement Property is acquired sometime after the Relinquished Property […]

Will Your 1031 Exchange Impact Your State Income Taxes?

As a qualified intermediary and licensed real estate professional, I’ve personally seen the surge in taxpayers leveraging the power of a 1031 exchange. It is a great way to defer capital gains taxes and more quickly build a portfolio of business or investment properties. Yet one area where more than one taxpayer has been caught out involves the impact of state income tax liability on the transactions, particularly when it comes to interstate exchanges. Since broadening geographic scope of investments is a key driver in many 1031 exchanges, the ramifications of interstate transactions should not be overlooked. While federal law makes no distinction for exchanges conducted across state lines, some […]

I Own an Easement Interest – Can I Trade It in a 1031 Exchange?

Although section 1031 of the IRS code has been around since 1921, there are still some misconceptions about them. 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, since it is the IRS, there are certain caveats to this determination. First, you must be clear about what a conservation easement is. It is a voluntary […]

Triple Net Lease (NNN) Essentials

In today’s uncertain economic times, traditional investments provide neither the stability or meaningful returns that investors seek. Perhaps that is why interest in net-leased, single-tenant real estate is skyrocketing. But for the casual investor, these properties – commonly called NNN or STNL in the industry – remain somewhat of a mystery. Before you embark on an investment of this type, it is important to understand the basics surrounding these appealing and flexible investment properties. Defining NNN Properties Typically, the types of real estate considered triple net lease investments are freestanding buildings that are leased out to national tenants on a long-term basis ranging between 10-25 years. These national tenants are […]

Understanding 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, […]

Understanding Boot in a 1031 Exchange

You won’t find the word “boot” anywhere in Section 1031 of the IRS tax code. Yet this term is one 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 the investor in an exchange. Money – This includes any cash (or cash […]

The Experts Weigh in On the Likelihood of Section 1031 Repeal

With things as chaotic as ever in Washington, DC, the threat of a big tax overhaul may be temporarily lost in the shuffle. However, when attention is once again focused on tax code modifications, where will section 1031 fall within the changes? A recent article in Commercial Property Executive explored the idea of 1031 repeal. Based on the responses in their article, many industry experts do not feel strongly that the elimination of 1031 exchanges will make the cut. Read more here.

Pros & Cons of a Tenancy in Common 1031 Investment

Recently we introduced an innovative new way to join the Tenancy in Common real estate investment movement. With self-storage TICs, individual owners can join the lucrative world of self-storage facility ownership – without the individual ownership price tag. But perhaps you aren’t up to speed on the world of TIC investments. Because there are always pros and cons to every type of investment, I want to briefly discuss the benefits and risks of this type of real estate investment opportunity. Benefits One of the advantage of Tenancy in Common ownership of investment property is that the individual investors each maintain the ability to have a say in the day-to-day operation […]