1031 News

Who is disqualified from facilitating a 1031 like-kind exchange?

Creation of the Role of Qualified Intermediary in the Treasury Regulations

Prior to the Internal Revenue Code Section 1031 Treasury Regulations issued in 1991 governing exchanges, it was difficult to arrange for the taxpayer’s buyer to actively participate in the taxpayer’s exchange transaction. It could not be accomplished without the buyer’s significant involvement. However, buyers were not typically motivated to assist in the seller’s attempt at tax deferral. The 1991 regulations sought to deal with this thorny problem by creating a new entity known as a qualified intermediary (QI).

The QI would serve as an intermediary to whom the...

Reduce Tax Exposure on Heavy Equipment Sales

For owners of heavy equipment, replacing or upgrading is a necessity. Newer, faster, more powerful machinery helps expand your capabilities and increase your operating efficiencies, and it allows your crews to operate more safely. For a lot of businesses, this means a trip to your preferred equipment dealer to trade in your old iron for new iron. However, if you’re not exploring all of your options, you could be missing out on the chance to maximize your buying power by reducing your exposure to the taxes associated with such transactions.

Trade-in Treatment

Most equipment owners understand the benefit of trade-in treatment. Instead of selling your old equipment to a third party for cash, you trade the equipment in to the dealer who then applies the value toward the purchase price of new equipment. This approach allows a permanent reduction of the sales tax liability related to the replacement equipment. Trading in equipment is a simple and great value-add for equipment dealers, but how much is the equipment owner truly saving?  Remember that your trade-in...

Is Early Release of Exchange Funds Possible Under 1031 Exchange Rules?

Changing Tax Laws Create Unique Opportunities

The results of the recent election cycle will have a profound effect on the United States income tax system.  With Republican control over both chambers of Congress and the Oval Office, we can expect bold moves in tax reform—bold, but not unexpected.  In anticipation of a reform-friendly environment, the House Republicans, prior to the November elections, released an outline for future tax reform.  Released on June 24, 2016 and titled, “A Better Way, Our Vision for a Confident America,” the document is the foundation for the Republican’s tax reform efforts.  The outline is also referred to as the “House Republican Blueprint” (HRB), and while only 35 pages in length, it seeks to begin a “conversation about how to fix our broken tax code.”

While few can accurately predict the outcomes of 2017 tax reform, the consensus view is that corporate tax rates will be reduced from current levels. While the timelines and the degree of these reductions are unknown, savvy CFOs are recognizing opportunity in the face of this uncertainty. Many tax advisors are looking...

Avoid Boot from Rent and Security Deposits in a 1031 Exchange

Taxable Boot Related to Prepaid Rent and Security Deposits

In a standard closing (not involving a 1031 exchange), it is typical for the prepaid rent and security deposits being held by the seller to be treated as a credit to the buyer at closing.  In that context, the net amount paid to the seller for the property at closing is simply reduced.  However, this same practice in connection with a sale of ...

Keep Your BIG (Built-In Gains) from Getting Small

Converting a C Corporation to an S Corporation

Thinking about changing your corporate structure from a C corporation to a subchapter S corporation?  S corporations, partnerships, and certain LLCs are considered pass-through entities, which means they "pass through" various types of taxable income: interest, dividends, deductions, and credits to the shareholders, partners, or members responsible for paying tax. This avoids the double taxation associated with C corporations that pay entity-level taxes and then distribute dividends that become subject to individual taxes.

What is Built-in Gains Tax?

With all of the tax advantages provided to S corporations, many companies are making the move.  However, there are some pitfalls.  One of these is the tax recognition of built-in gains (BIG). Generally, BIG tax is triggered when existing assets are sold during the ...

Section 1031 - Misstatements and Misleading Information

During his campaign, President-elect Trump was criticized for the non-release of income tax returns.  The information available is limited to his own statements and the release of three pages from his 1995 returns of income from New York and New Jersey.  These pages reveal what amounts to a $900M loss.  Unfortunately, these documents are driving misstatements and generating misleading information related to Section 1031 Like-Kind Exchanges – one of the real estate industry’s most popular tax strategies

Misstatements and Misleading Information about...

The Same Taxpayer Requirement in a 1031 Tax Deferred Exchange

What is the Same Taxpayer Rule in a 1031 Like-Kind Exchange?

In a 1031 exchange, the taxpayer who owns the relinquished property must be the same taxpayer who takes ownership of the ...

Safe Harbors: The Core of the Section 1031 Treasury Regulations

What are safe harbors and why are they needed?

The 1991 tax deferred exchange regulations provided for various “safe harbors” to allow certain specific actions set forth in the regulations to be utilized by parties without otherwise running afoul of the rules. Without the safe harbors, these actions would disqualify an exchange. These safe harbors were put into the regulations as solutions for problems in the mechanics of an exchange prior to the 1991 regulations and in order to make a delayed exchange easier to accomplish. Some of these safe harbors have come to be used in almost every single transaction, while others are seldom used. Let’s take a more detailed look at these safe harbors:

  • Security or Guaranty
  • ...

The Bartell Decision: Non-Safe Harbor Parking Exchanges Have Just Become Safer

Background on Reverse Tax Deferred Exchanges

Modern day tax deferred exchanges began in the early 1980s with a court ruling (the Starker case) that an exchange for relinquished property and the purchase of corresponding ...

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