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FINANCIAL EXCHANGE

Established 1989

Asset Transfer Consultants

Business Intermediation

Finance

IRS SECTION 1031, 1033 and 721 (Tax Deferred) EXCHANGE

Financial Exchange Corp. recommends each entity consult with a qualified professional experienced with IRS Section 1031 property exchanges for current individual application of IRS guidelines.     

What are the Basics of a  § 1031 Exchange?

A
§ 1031 Exchange is a mechanism that allows one to defer capital gains taxes otherwise incurred at the sale of real estate. 

Basic Criteria:

1. Properties: Simplified, both the old property and the new property must be either land, commercial or rental property (in certain cases, vacation and even personal residential property also qualify). You can exchange property for other IRS recognized like-kind property. For example, office buildings could be sold and apartments purchased or an industrial complex sold and raw land purchased. The buying and selling transactions can be separate events involving different parties, just as they would in any arms-length sale and repurchase of property.

2. Money: You cannot touch the proceeds (money). By law, the proceeds from the sale of your current property must be held with a Safe Harbor "Qualified Intermediary or Qualified Escrow Holder" (sometimes also called an "Accommodator" or a "Facilitator"). You cannot place the proceeds in escrow until the second property is acquired, nor can you have a friend, employee, broker, your CPA or attorney hold the money for you.

3. Timing: From the date you close on the sale of your current property, you have 45 days to determine a list of up to three properties you want to own. Also, from the date of closing of the sale of your current property, you have 180 days to close on the purchase of one or all of the properties listed on your 45-day list.

4. Reinvestment: To avoid taxable gain, you must reinvest in a property of equal or greater value.  To exchange for property of less value may cause prorated tax liability.

5. Title: The title-holder of the old, sold property must remain the title holder of the new property until after the exchange is completed.

 

Advanced Exchange Techniques

Contact a FEC consultant for information about the following:

1. Exceptions to the three property rule: Identify more than just three properties.

2. Reverse exchanges: Buy a new property before selling your old one.

3. Construction exchanges: Buy bare land and develop it within
 § 1031 guidelines.

4. Refinancing
 § 1031 property: After the exchange is complete, you can take tax-deferred cash out of your new property.

5. The
 § 1033 exchange: Your property is taken by a governing or government authority allowing tax deferred exchange within IRS guidelines less stringent than  § 1031.

6. The  §  721 exchange: Tax deferred exchange for a tenants-in-Common or single property ownership investment inn to a Real Estate Investment Trust (REIT).

Visit www.1031FEC.com

 

FEC recommends the assistance of a professional experienced with IRS Section 1031 property exchanges for one's individual  § 1031 tax-deferred exchange.

What Property Qualifies for IRS Section 1031 Exchange?

QUALIFIED PROPERTIES:

The classification of properties exchanged determines if the property qualifies for Internal Revenue Service Section 1031 treatment.

A. Four IRS Classifications of Real Estate:

  1. Property held for personal use. (Personal Property)
  2. Property held primarily for sale. (Dealer Property)
  3. Property held for productive use in a trade or business. (Business Property)
  4. Property held for investment. (Investment Property)

The last two qualify for IRS Section 1031 tax deferral.  The first two do not qualify.  Both the property received and the property sold must be of "Like Kind". It is your use of the property that determines its classification.  What the other party does with the property does not affect your tax status.

B. Like-Kind Property

  1. Like-Kind refers to your use of the property and not to its grade or quality.  Type of  property depreciation (§1245 or §1250) apply.
  2. IRS Section 1031 property may be mixed as to type and still be Like-Kind. As an example, you may exchange land for a duplex, or a commercial building for a retail store, etc. 
  3. Property held outside the USA and its territories does not qualify for exchange with property held within the USA.

C. Partnership Interests

Your interest in a partnership cannot be traded for an interest in another partnership.

Exception: A partnership as an entity can exchange real estate it owns for other Like-Kind real estate.

D. Transfer Between Spouses

There are no income tax consequences when entering into financial transactions between spouses. In addition, most transfers incident to a divorce are tax free. However, transactions with a former spouse are normally subject to tax unless they qualify for non recognition under the provisions of IRS Section 1031.

E. Sale/Lease Back As An Exchange

A Lessee’s interest in a lease with a term of 30 years or longer in real property is considered Like-Kind to other real property. In addition, property which is subject to a lease can be, even if the lease is for a term of 30 years or longer, the subject of a tax free exchange. However the receipt of prepaid lease payments in an exchange for a 30-year or longer lease is taxed as ordinary income and will not qualify for tax-free exchange treatment.

F. Business Assets

The personal property assets of one business can be exchanged for Like-Kind assets of another business and will be held as a Like-Kind exchange under IRS Section 1031. The real property is treated the same as any other exchange. The Like-Kind requirements for personal property are much more stringent than for real property (e.g., a truck cannot be exchanged for a car, nor can a barge be exchanged for a cargo ship).

G. Vacation Homes & Properties

This type of property does not qualify if it is used solely for personal use.

It may qualify if rented, and must pass a use test each year.  

  § 721 TIC Exchange and a Tenants-In-Common Investment

In a Tenants-in-Common (TIC) investment you are a co-owner of an entire property. You title as an owner in an undivided interest in the property along with other investors. For example, as a TIC investor in a multi-tenant office, you share in the ownership of the entire property, not a specific office space. Likewise, if you invest in an apartment complex, you share in the ownership of the entire property, not a specific unit.

A
Tenants-in-Common (TIC) investment  § 1031 exchange may  § 721 exchange allowing tax deferral into a Real Estate Investment Trust (REIT).   § 721 Exchange TIC investments are structured to defer capital gains taxes in accordance with  § 1031 exchange requirements.

Contact your FEC Mergers & Acquisitions Intermediary or see Tenants-In-Common for more information.

1031 Information in PDF Format

1031 Exchange 101

Section 1031 Tax Code

Using Exchanges to Postpone Capital Gains Taxes

1031 - 721 TIC Exchanges

or visit www.1031fec.com

 

ASSET TRANSFER TAX SAVING

PLANNING & ALTERNATIVES

BY

 

Kenneth Wheeler DBA

Financial Exchange

2401 Bay Street

Sarasota, FL 34237-8116

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310 Northeast Ewing Street

Grimes (Des Moines), Iowa 50111

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Phone: 888.618.9681

or 515.309.1538 

Fax:  888.898.6009

E-mail

Information Request Form

K. B. Wheeler Member

Greater Des Moines Partnership

 

Financial Exchange is a non-incorporated entity

 

Thank you for your time and investment interest.

One's property of value inevitably transfers ownership, with or without one's wishes.  

Prepare now to save your family wealth.  Ken Wheeler

 

Copyright © 2001-2016  Financial Exchange  All rights reserved

 

June 24, 2016
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