THE POWER OF EXCHANGE™
This presentation is the property of its rightful owner.
Sponsored Links
1 / 116

THE POWER OF EXCHANGE™ Discover the Value of §1031 Tax Deferred Exchanges PowerPoint PPT Presentation


  • 102 Views
  • Uploaded on
  • Presentation posted in: General

THE POWER OF EXCHANGE™ Discover the Value of §1031 Tax Deferred Exchanges Presentation by Kennen Cohen. §1031 Exchange Terminology. Boot Cash Boot Constructive Receipt Direct Deeding Exchanger Exchange Agreement Exchange Period. §1031 Exchange Terminology. Identification Period

Download Presentation

THE POWER OF EXCHANGE™ Discover the Value of §1031 Tax Deferred Exchanges

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


The power of exchange discover the value of 1031 tax deferred exchanges

THE POWER OF EXCHANGE™

Discover the Value of §1031 Tax Deferred Exchanges

Presentation by Kennen Cohen


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange Terminology

  • Boot

  • Cash Boot

  • Constructive Receipt

  • Direct Deeding

  • Exchanger

  • Exchange Agreement

  • Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange Terminology

  • Identification Period

  • Like-Kind Property

  • Mortgage Boot

  • Qualified Intermediary

  • Relinquished Property

  • Replacement Property


Poll question 01

Poll question 01.

Sec. 1031 is part of the?

Constitution

A

B

State Statue

C

Internal Revenue Code

D

Real estate commission rules


The power of exchange discover the value of 1031 tax deferred exchanges

Internal Revenue Code §1031

Non-Recognition of Gain or Loss

from Exchange Solely of Kind

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”


The power of exchange discover the value of 1031 tax deferred exchanges

§1031: Exceptions

  • Stock in trade or other property held primarily for sale

  • Stocks, bonds, or notes

  • Other securities or evidences of indebtedness or interest

  • Interests in a partnership

  • Certificates of trust or beneficial interest

  • Choses in action


The power of exchange discover the value of 1031 tax deferred exchanges

History of IRC §1031 / Capital Gain Tax

1989

Revenue Reconciliation Act of 1989

1984

Deficit Reduction Act of 1984

1921

Revenue Act of 1921

1921

1989

1979

1984

1986

1986

Tax Reform Act of 1986

1979

Starker Tax Court Cases


The power of exchange discover the value of 1031 tax deferred exchanges

History of IRC §1031 / Capital Gain Tax

September 15, 2000

Rev. Proc. 2000-37

1991

Final Treasury Regulations

1991

2003

1997

2000

May 6, 2003

Jobs & Growth Reconciliation Act

1979

Tax Relief Act


Poll question 02

Poll question 02.

Congress first allowed the exchange of properties in:

1969

A

B

1984

C

2001

D

1921


The power of exchange discover the value of 1031 tax deferred exchanges

Relevant Issues

Tax Deferral

15% Federal

+ 0- 13% State

15 – 28% Tax Deferral

Plus 25% Depreciation Recapture

  • Investors can potentially defer 100% of their capital gain taxes, both state and federal

  • Liability

  • Increase your income

  • Competition

  • Client Benefits


The power of exchange discover the value of 1031 tax deferred exchanges

Investor Motives

Investors increase their rateofreturn by using:

  • Leverage

  • Diversification

  • Consolidation

  • Cash Flow

  • Management Relief

  • Increase Depreciation

  • Estate Planning


The power of exchange discover the value of 1031 tax deferred exchanges

Definition of Like-Kind Property

Real Property for Real Property


Feedback question 03

Feedback question 03.

What would not be considered like-kind property to an office building?

Apartment building

A

B

Vacation rental properties

C

Retail center

D

Primary Residence


Feedback question 031

Feedback question 03.

What would not be considered like-kind property to an office building?

A

B

C

Apartment building

Vacation rental properties

D

Retail center

Primary Residence


The power of exchange discover the value of 1031 tax deferred exchanges

Like-Kind Issues: Holding Period

Time is only one factor

The Taxpayer’s “intent” is the key issue


The power of exchange discover the value of 1031 tax deferred exchanges

Like-Kind Issues: Holding Period

Time is only one factor

The Taxpayer’s “intent” is the key issue

One Perspective

  • 24 months or more

  • In PLR 8429039, the IRS stated that a minimum holding period of two years would be sufficient.


The power of exchange discover the value of 1031 tax deferred exchanges

Like-Kind Issues: Holding Period

Time is only one factor

The Taxpayer’s “intent” is the key issue

One Perspective

Second Perspective

  • Minimum of 12 months

  • Straddles two tax filing years.

  • Over 12 months qualifies for long-term capital gain treatment.

  • Attempt by Congress in 1989 to impose one year holding period (which didn’t pass).

  • 24 months or more

  • In PLR 8429039, the IRS stated that a minimum holding period of two years would be sufficient.


The power of exchange discover the value of 1031 tax deferred exchanges

Like-Kind Property Issues

  • Interests in a partnership

  • Property within the United States

  • FRPTA and SRPTA

  • Personal Property

  • Fee for Leasehold (30+ years)

  • Vacation/Second Homes

  • Property Held for Resale

  • Related Party Exchanges


The power of exchange discover the value of 1031 tax deferred exchanges

Like-Kind Property Issues- Vacation Homes

  • Revenue Procedure 2008-16

  • Creates safe harbor for vacation home exchanges.

  • IRS will consider a dwelling unit held for investment if certain requirements are met.


The power of exchange discover the value of 1031 tax deferred exchanges

Like-Kind Property Issues- Vacation Homes

  • Barry E. Moore v. Comm., T.C. Memo. 2007-134:

  • The taxpayers never rented or attempted to rent the property.

  • The taxpayers deducted mortgage interest as a “home mortgage interest” expense rather than investment interest expense.

  • The taxpayers did not take (and possibly did not qualify for) depreciation or other tax benefits associated with investment property, including deductions or maintenance expenses.

  • Planning Strategies:

  • Substantiate investment intent.

  • Report rental income, attempts to rent property or conversion from a second home to a rental property held for investment.

  • Treat property as held for investment on the tax return.


The power of exchange discover the value of 1031 tax deferred exchanges

Conservative (“Safer”)

1

2

3

Safe Harbor

Revenue Procedure 2008-16

4

5

6

Range of possible vacation home exchanges.

7

8

9

10

Non-Safe Harbor

Moore vs. Comm. 2007-134

Aggressive (“Riskier”)

Like-Kind Property Issues- Vacation Homes

Exchanges of vacation homes held for investment are possible, provided the primary reason is holding for investment and not for personal use.


The power of exchange discover the value of 1031 tax deferred exchanges

Related Party Rules

Who is a Related Party?


The power of exchange discover the value of 1031 tax deferred exchanges

Related Party Rules

  • Four Different Scenarios:

  • Simultaneous Exchange

    2. Delayed – Selling to a Related Party

    3. Delayed – Purchasing from a Related Party

    (See Rev. Ruling 2002-83, PLR 9748006)

    4. Delayed – Purchasing from a Related Party who is Exchanging

    (See PLR 2004-40002)


The power of exchange discover the value of 1031 tax deferred exchanges

Internal Revenue Code §121

  • Married Taxpayers, filing a joint return, can exclude up to $500,000

  • Single filers can exclude up to $250,000

  • Home must be primary residence of both spouses for 2 of the last 5 years

  • §121 exclusion available once every two years

  • Vacation/second homes do not qualify


The power of exchange discover the value of 1031 tax deferred exchanges

Jobs & Growth - Reconciliation Act-2003

Federal Capital Gain Tax Changes

  • Rate reduced to 15% (from 20%) for Taxpayers in the top tax bracket

  • Rate reduced to 5% for Taxpayers in the 10% and 15% tax brackets

  • Retroactive to May 6, 2003


The power of exchange discover the value of 1031 tax deferred exchanges

Treasury Decisions 9152

  • Taxpayers may exclude gain from principal residence even though they have owned it for less than two years.

  • Maximum exclusion applies only if the sale is by reason of:

  • Change in place of employment (50 miles)

  • Health of certain qualified individuals

  • Unforeseen circumstances (death, divorce, multiple births from same pregnancy, unemployment or change in employment, etc.)


The power of exchange discover the value of 1031 tax deferred exchanges

American Jobs Creation Act-2004

“Recognition of gain from the sale of a principle residence acquired in a like-kind exchange within 5 years of sale. (10) PROPERTY ACQUIRED IN LIKE-KIND EXCHANGE -- If a taxpayer acquired property in an exchange to which section 1031 applied, subsection (a) shall not apply to the sale or exchange of such property if it occurs during the 5-year period beginning with the date of the acquisition of such property.”


The power of exchange discover the value of 1031 tax deferred exchanges

Revenue Procedure 2005-14

  • Take advantage of §121 (tax exclusion on a primary residence) and §1031 (tax deferred exchange treatment) when a property was a primary residence for 2 of the last 5 years, but most recently held for investment purposes.

  • Allows both capital gain tax exclusion – and deferral – which benefits homeowners with gain over the $500,000 and $250,000 limits.


Feedback question 04

Feedback question 04.

In order for an exchange to qualify for 100% tax deferral, the taxpayer must?

Purchase greater square footage

A

B

Payoff all debt

C

Reinvest all net exchange proceeds

D

Use a real estate broker


Feedback question 041

Feedback question 04.

In order for an exchange to qualify for 100% tax deferral, the taxpayer must?

D

A

B

Purchase greater square footage

Payoff all debt

C

Reinvest all net exchange proceeds

Use a real estate broker


The power of exchange discover the value of 1031 tax deferred exchanges

The Exchange Equation

For full tax deferral, an Taxpayer must meet two requirements:

  • Reinvest all net exchange proceeds

  • Acquire property with the same or greater debt.

The Taxpayer acquired property of greater value, reinvesting all net equity and increasing the debt on the replacement property.

Analysis:There is no boot.


The power of exchange discover the value of 1031 tax deferred exchanges

The Exchange Equation

The Taxpayer acquired property of a lower value, keeps $100,000 of the net equity and acquired a replacement property with $40,000 less debt.

Analysis:This results in a total of $140,000 in boot.

($40,000 mortgage boot and $100,000 in cash boot = $140,000)


The power of exchange discover the value of 1031 tax deferred exchanges

The Exchange Equation

The Taxpayer acquired property of a lower value, reinvesting all net equity, but has less debt on the replacement property.

Analysis:This results in $40,000 in mortgage boot.


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange - Formats & Variations

§1031 Exchange


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange - Formats & Variations

The Two-Party Trade (Swap)

§1031 Exchange


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange - Formats & Variations

The Two-Party Trade (Swap)

§1031 Exchange

The Three-Party Exchange (Alderson Format)


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange - Formats & Variations

The Two-Party Trade (Swap)

§1031 Exchange

The Delayed Exchange with a QI

The Three-Party Exchange (Alderson Format)


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange - Formats & Variations

The Two-Party Trade (Swap)

Multiple Sales and Acquisitions

§1031 Exchange

The Delayed Exchange with a QI

The Three-Party Exchange (Alderson Format)


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange - Formats & Variations

Parking Arrangements (Reverse and Improvement)

The Two-Party Trade (Swap)

Multiple Sales and Acquisitions

§1031 Exchange

The Delayed Exchange with a QI

The Three-Party Exchange (Alderson Format)


The power of exchange discover the value of 1031 tax deferred exchanges

The Two-Party Trade (Swap)

Party A

Party B

SINGLE FAMILY HOME

SINGLE FAMILY HOME

Trade of Deeds


Poll question 05

Poll question 05.

A two party trade or sway could be done without a(n)

Agreement

A

B

Like-kind property

C

Qualified intermediary

D

Deeded interest


The power of exchange discover the value of 1031 tax deferred exchanges

The Three-Party Exchange - Alderson

ALDERSON

SELLER

BUYER


The power of exchange discover the value of 1031 tax deferred exchanges

The Three-Party Exchange - Alderson

ALDERSON

Rel. Prop. Deed

SELLER

BUYER


The power of exchange discover the value of 1031 tax deferred exchanges

The Three-Party Exchange - Alderson

ALDERSON

Rel. Prop. Deed

Rep. Prop. Deed

SELLER

BUYER


The power of exchange discover the value of 1031 tax deferred exchanges

The Three-Party Exchange - Alderson

ALDERSON

Rel. Prop. Deed

Rep. Prop. Deed

SELLER

BUYER

Rep. Prop. Deed


The power of exchange discover the value of 1031 tax deferred exchanges

The Three-Party Exchange - Alderson

ALDERSON

Rel. Prop. Deed

Rep. Prop. Deed

SELLER

BUYER

Rep. Prop. Deed

$


Feedback question 06

Feedback question 06.

Which of the following exchange formats is most widely used today?

The delayed exchange

A

B

Two-party swap

C

Alderson format

D

Reverse exchange


Feedback question 061

Feedback question 06.

Which of the following exchange formats is most widely used today?

C

D

B

The delayed exchange

Two-party swap

A

Alderson format

Reverse exchange


The power of exchange discover the value of 1031 tax deferred exchanges

The Delayed Exchange with a QI

SALE

TAXPAYER

Direct Deed

BUYER

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Delayed Exchange with a QI

SALE

TAXPAYER

Direct Deed

BUYER

QUALIFIED

INTERMEDIARY

$

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Delayed Exchange with a QI

SALE

TAXPAYER

PURCHASE

Direct Deed

Direct Deed

SELLER

BUYER

QUALIFIED

INTERMEDIARY

$

$

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

Delayed Exchange - Time Requirements

45 Day Identification Period:

The Taxpayer must identify potential replacement property(s) by midnight of the 45th day from the date of sale.

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

Delayed Exchange - Time Requirements

180 Day Exchange Period:

45 Day Identification Period:

The Taxpayer must acquire the replacement property by midnight of the 180th day, or the date the taxpayer must file its tax return (including extensions) for the year of the transfer of the relinquished property, whichever is earlier.

The Taxpayer must identify potential replacement property(s) by midnight of the 45th day from the date of sale.

0

45

180

Identification

Period

Total Exchange Period


Poll question 07

Poll question 07.

The identification period ends on midnight of the ___ calendar day after closing on the relinquished property.

45th

A

B

60th

C

135th

D

180th


The power of exchange discover the value of 1031 tax deferred exchanges

Delayed Exchange - Identification Rules

Three Property Rule:The Taxpayer may identify up to three properties of any fair market value.

200% Rule:The Taxpayer may identify an unlimited number of properties provided the total fair market value of all properties identified does not exceed 200% of the fair market value of the relinquished property.

95% Rule:If the Taxpayer identifies properties in excess of both of the above rules, then the Taxpayer must acquire 95% of the value of all properties identified.


The power of exchange discover the value of 1031 tax deferred exchanges

Delayed Exchange - Identification Rules

Identification must be:

  • Made in writing

  • Unambiguously describe the property (street address or legal description)

  • Signed and dated by the Taxpayer

  • Sent by midnight of the 45thday

  • Delivered to the Qualified Intermediary or a party related to the exchange who is not a disqualified person


The power of exchange discover the value of 1031 tax deferred exchanges

Highlights of a Valid Delayed Exchange

  • Consult with an experience Qualified Intermediary (QI), and tax/legal advisors prior to closing on the sale of the relinquished property.

  • Ensure that the sale contract is assignable and that the buyer is made aware of such assignment in writing.

  • The following language is to establish three things:

  • Intent to effect a §1031 tax deferred exchange;

  • Release the Buyer from any liabilities or costs resulting in the exchange;

  • Notify the Buyer in writing of assignment.


The power of exchange discover the value of 1031 tax deferred exchanges

Highlights of a Valid Delayed Exchange

  • Sale of the Relinquished Property:“Buyer is aware that Seller is to perform an IRC §1031 tax deferred exchange. Seller requests Buyer’s cooperation in such an exchange, and agrees to hold Buyer harmless from any and all claims, liabilities, costs, or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract by the Seller”

  • The Qualified Intermediary’s Exchange Agreement must be executed prior to closing the sale. QI oversees the closing. 

  • The Taxpayer must identify the property(s) to be acquired in accordance with the Rules of Identification.

  • The Taxpayer must close on the new property by the 180th calendar day (or their tax filing date – whichever is earlier) from the close of the relinquished property sale.


The power of exchange discover the value of 1031 tax deferred exchanges

§1031 Exchange Documentation

Qualified Intermediary:

  • Exchange Agreement

  • Assignment Agreement

  • Notice of Assignment

  • Account Set-Up Forms

  • Security of Funds Instrument

  • Instruction to closing officer

    Closing Entity:

  • Settlement Forms

  • FRPTA (state withholding, where applicable)

  • 1099 Form

  • Other documents common to the area

§1031 Exchange Documentation


The power of exchange discover the value of 1031 tax deferred exchanges

The Multiple Property Exchange

SALE

TAXPAYER

PURCHASE

Deed

BUYER 1

SELLER

QUALIFIED

INTERMEDIARY

BUYER 2

$

$

BUYER 3

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Multiple Property Exchange

SALE

TAXPAYER

PURCHASE

Deed

Deed

SELLER 1

$

BUYER

QUALIFIED

INTERMEDIARY

SELLER 2

$

$

$

SELLER 3

0

45

180

Identification

Period

Total Exchange Period


Feedback question 08

Feedback question 08.

In both a reverse exchange and improvement exchange what is the name of the format used to make sure they taxpayer does not own both properties at the same time?

Delayed exchange

A

B

Qualified intermediary

C

Conservation easement

D

Parking arrangement


Feedback question 081

Feedback question 08.

In both a reverse exchange and improvement exchange what is the name of the format used to make sure they taxpayer does not own both properties at the same time?

C

A

B

Delayed exchange

Qualified intermediary

D

Conservation easement

Parking arrangement


The power of exchange discover the value of 1031 tax deferred exchanges

Parking Arrangements

What is a Reverse Exchange?


The power of exchange discover the value of 1031 tax deferred exchanges

Parking Arrangements

What is a Reverse Exchange?

Purchasing the replacement property before the sale ofthe relinquished property.


The power of exchange discover the value of 1031 tax deferred exchanges

Parking Arrangements

What is an Improvement Exchange?


The power of exchange discover the value of 1031 tax deferred exchanges

Parking Arrangements

What is an Improvement Exchange?

Building a new replacement property from the ground-up or making improvements to an existing replacement property.


The power of exchange discover the value of 1031 tax deferred exchanges

Revenue Procedure 2000-37

  • Effective September 15, 2000

  • Provides a “safe harbor” for reverse exchange transactions that stay within the parameters of the Revenue Procedure.

  • Reverse exchanges may be structured outside the safe harbor.


The power of exchange discover the value of 1031 tax deferred exchanges

Revenue Procedure 2000-37

Key Terms

QEAA = Qualified Exchange Accommodation Arrangement

EAT = Exchange Accommodation Titleholder

(EAT cannot be a disqualified person and must be subject to federal income tax.)


The power of exchange discover the value of 1031 tax deferred exchanges

QEAA Summary

  • EAT must acquire legal title to the property or other indicia of ownership to be treated as beneficial ownership of the property under applicable principles of commercial law (e.g., a contract for deed).

  • Intent– It is the Taxpayer’s bona fide intent that the property held by the exchange accommodation title holder represent either replacement property or relinquished property in an exchange.


The power of exchange discover the value of 1031 tax deferred exchanges

QEAA Summary

  • Qualified Exchange Accommodation Agreement

  • No later that five business days after the EAT’s acquisition of the replacement property, the Taxpayer and the EAT enter into QEAA.

  • Identification of relinquished property within 45 calendar days in the manner consistent with the requirements of §1-1031(k)-1(c).

  • 180 calendar days maximum parking term by EAT.


The power of exchange discover the value of 1031 tax deferred exchanges

Permissible Agreements

  • EAT may act as both QI and EAT.

  • Taxpayer may guarantee debt or obligations and can indemnify the EAT from construction expenses.

  • Taxpayer may loan or advance funds for acquisition.

  • EAT can lease or enter into management agreements with Taxpayer.

  • Taxpayer can act as supervisor and/or contractor to provide means for improvements on parked property.

  • EAT and Taxpayer may enter agreements, puts and calls and fixed or formula prices.


Replacement property parked step 1

Replacement Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

EAT Acquisition

SELLER

QUALIFIED

INTERMEDIARY

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 11

Replacement Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

EAT Acquisition

$

SELLER

QUALIFIED

INTERMEDIARY

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 12

Replacement Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

EAT Acquisition

$

SELLER

QUALIFIED

INTERMEDIARY

$

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 13

Replacement Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

EAT Acquisition

$

Rep. Prop. Deed

SELLER

QUALIFIED

INTERMEDIARY

$

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 14

Replacement Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

EAT Acquisition

$

Lease

Rep. Prop. Deed

SELLER

QUALIFIED

INTERMEDIARY

$

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 2

Replacement Property Parked (Step 2)

Reverse Exchange Format

TAXPAYER

BUYER

EAT

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 21

Replacement Property Parked (Step 2)

Reverse Exchange Format

TAXPAYER

Rel. Prop. Deed

BUYER

EAT

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 22

Replacement Property Parked (Step 2)

Reverse Exchange Format

TAXPAYER

Rel. Prop. Deed

BUYER

EAT

$

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 23

Replacement Property Parked (Step 2)

Reverse Exchange Format

TAXPAYER

Rel. Prop. Deed

$

BUYER

EAT

$

180

45

0

Identification

Period

Total Exchange Period


Replacement property parked step 24

Replacement Property Parked (Step 2)

Reverse Exchange Format

TAXPAYER

Rel. Prop. Deed

$

Rep. Prop. Deed

BUYER

EAT

$

180

45

0

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

Reverse Exchange Format

Positives

  • Exchange Equity Need Not Be Present

  • Allows For Multiple Relinquished Properties


The power of exchange discover the value of 1031 tax deferred exchanges

Reverse Exchange Format

Positives

Negatives

  • Exchange Equity Need Not Be Present

  • Allows For Multiple Relinquished Properties

  • Lender May Have Issues Lending To EAT


Relinquished property parked step 1

Relinquished Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

EAT

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 11

Relinquished Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

Rel. Prop. Deed

EAT

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 12

Relinquished Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

Rel. Prop. Deed

Lease

EAT

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 13

Relinquished Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

SELLER

EAT

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 14

Relinquished Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

$

SELLER

EAT

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 15

Relinquished Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

$

SELLER

EAT

$

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 16

Relinquished Property Parked (Step 1)

Reverse Exchange Format

TAXPAYER

Rep. Prop. Deed

$

SELLER

EAT

$

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 2

RelinquishedProperty Parked (Step 2)

Reverse Exchange Format

TAXPAYER

BUYER

EAT

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 21

RelinquishedProperty Parked (Step 2)

Reverse Exchange Format

TAXPAYER

Rel. Prop. Deed

BUYER

EAT

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 22

RelinquishedProperty Parked (Step 2)

Reverse Exchange Format

TAXPAYER

Rel. Prop. Deed

BUYER

EAT

$

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked step 23

RelinquishedProperty Parked (Step 2)

Reverse Exchange Format

TAXPAYER

$

Rel. Prop. Deed

BUYER

EAT

$

180

45

0

Identification

Period

Total Exchange Period


Relinquished property parked

Relinquished Property Parked

Reverse Exchange Format

Positives

  • Loan and purchase easier (direct loan to Taxpayer)


Relinquished property parked1

Relinquished Property Parked

Reverse Exchange Format

Positives

Negatives

  • Loan and purchase easier (direct loan to Taxpayer)

  • Equity and debt should match to avoid boot

  • Lender issues (Due on sale & prepayment penalties)


Poll question 09

Poll question 09.

How long after purchasing a replacement property would a taxpayer have to sell their relinquished property under a safe harbor reverse exchange?

Undefined

A

B

Maximum of 180 days

C

Maximum of 360 days

D

Maximum of 45 days


The power of exchange discover the value of 1031 tax deferred exchanges

The Improvement Exchange

  • Why Perform an Improvement Exchange?

  • The property to be acquired in the exchange is not of equal or greater value to property being sold.

  • Build a new investment from ground-up.

  • The new investment is of equal or greater value but it needs refurbishments.


The power of exchange discover the value of 1031 tax deferred exchanges

The Improvement Exchange

Step 1

TAXPAYER

SELLER

BUYER

EAT

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Improvement Exchange

Step 1

TAXPAYER

Rel. Prop. Deed

SELLER

BUYER

EAT

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Improvement Exchange

Step 1

TAXPAYER

Rel. Prop. Deed

SELLER

BUYER

EAT

$

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Improvement Exchange

Step 1

TAXPAYER

Rel. Prop. Deed

SELLER

BUYER

EAT

$

$

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Improvement Exchange

Step 1

TAXPAYER

Rel. Prop. Deed

Rep. Prop Deed

SELLER

BUYER

EAT

$

$

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Improvement Exchange

Step 1

TAXPAYER

Rel. Prop. Deed

Construction Agreement

Rep. Prop Deed

SELLER

BUYER

EAT

$

$

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

The Improvement Exchange

Step 2

TAXPAYER

Rep. Prop. Deed

EAT

0

45

180

Identification

Period

Total Exchange Period


The power of exchange discover the value of 1031 tax deferred exchanges

Important Issues in Improvement Exchange

Identification of Replacement Property to be Produced

“…if a legal description is provided for the underlying land and as much detail is provided regarding construction of the improvements as is practicable at the time identification is made.”


The power of exchange discover the value of 1031 tax deferred exchanges

Important Issues in Improvement Exchange

Receipt of Replacement Property to be Produced

“…if not within the provisions of Section 1031(a) if the relinquished property is transferred in exchange for services (including production services). Thus, any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of like-kind.”


The power of exchange discover the value of 1031 tax deferred exchanges

Why Exchange? Sale vs. an Exchange


The power of exchange discover the value of 1031 tax deferred exchanges

Why Exchange? Sale vs. an Exchange

Note: 25% x $150,00 = $ 37,500 * 15% x $570,000 = $85,500 * 9.3% x 720,000 = $66,960


The power of exchange discover the value of 1031 tax deferred exchanges

Choosing a “Qualified Intermediary”


The power of exchange discover the value of 1031 tax deferred exchanges

Choosing a “Qualified Intermediary”


Feedback question 10

Feedback question 10.

The Qualified Intermediaries fees on reverse and improvement exchanges are?

Less than a delayed exchange

A

B

Typically more than a delayed exchange

C

About the same as delayed exchanges

D

About the same as a simultaneous exchange


Feedback question 101

Feedback question 10.

The Qualified Intermediaries fees on reverse and improvement exchanges are?

D

A

Less than a delayed exchange

C

Typically more than a delayed exchange

B

About the same as delayed exchanges

About the same as a simultaneous exchange


The power of exchange discover the value of 1031 tax deferred exchanges

QUESTIONS?

Content provided by Asset Preservation

800-282-1031 Apiexchange.com [email protected]


The power of exchange discover the value of 1031 tax deferred exchanges

T

H

E

E

N

D

Thank you for being a McKissock customer!

Please fill out the evaluation form.

We value your input!

We hope you enjoyed the course, and if you have any questions, please don’t hesitate to call us at

1-800-328-2008


  • Login