Accruit, LLC is closely monitoring any 1031 exchange deadline extensions due to COVID-19 on both a state and federal level through the Department of Treasury and IRS
As uncertain as we are of the current economic situation, investors are optimistic when it comes to real estate opportunities but may be seeking certitude in the concepts of 1031 exchange. Tried and true, tax-deferred exchanges translate to more value in the property portfolios of investment and business use property owners. That’s a bailout they can count on. While players in the residential housing space are adjusting to the current ‘ball game’ by offering virtual tours and remote closings to generate activity, the commercial, industrial and agricultural/recreational segments maintain their robustness.
What is a Reverse Exchange and What Causes it to Fail?
A conventional IRC §1031 tax deferred exchange involves, among other things, a taxpayer’s sale of old property (the “relinquished property”) followed by the purchase of new property (the “replacement property”) within a 180 day period. A so-called reverse exchange takes place when the taxpayer is forced to acquire the ...
In our fourth and final installment of our continuing series on entity selection for owning real estate, we will address the business and tax law considerations concerning limited liability companies.
What is a Limited Liability Company?
Limited liability companies (LLCs) are the most popular choice of organizational form because of the inherent flexibility in most state statutes that enhances the ability of the entity to adopt features that best serve its objectives. LLCs are a very common choice for owning real estate because of their tax treatment, limited liability and flexibility in allocating power structure and management responsibilities.
The best way to understand the unique features of an LLC is to distinguish it from the other entities we’ve discussed in Parts I – III in this blog series. The principal purpose of the LLC is to obtain favorable tax benefits along with the limitation...
Accruit board member Joseph Lane was named vice chairman of Napier Park Global Capital and appointed to the firm's leadership team as a member of the Management Committee.
A managing director in Napier Park's Real Assets group, Joe has over 35 years of experience in financial services. He has previously served as CEO of GE Technology Finance and as president of IBM Credit Corporation. Joe has been director and chairman of the Equipment Leasing and Finance Association (ELFA), and chairman of the Equipment Leasing and Finance Foundation. He was elected to the Equipment Finance Hall of Fame in 2015.
Corporations are one of the oldest forms of legal entities. A significant body of case law and statutes exist defining the rights and liabilities of shareholders, officers, directors, and third parties dealing with the corporate entity. Certain states, like Delaware, have particularly favorable business corporation statues. As a result, many firms will strategically organize in those states in order to obtain the benefit of those advantageous laws.
Unlike a general partnership that can come into existence without filing anything affirmative, a corporation has a separate legal existence. The corporate structure serves to insulate most of the debts from the shareholders. A corporation is able to hold property in its own name and provide its shareholders with limited liability so long as the...
Property ownership is often held by various kinds of trusts. Each type of trust exists for its own special purposes and is governed by different legal principles. These trusts can be confusing and so too can be their interrelationship with wills and probate. Sometimes property sold as part of a 1031 tax deferred exchange involves trust ownership. This blog will attempt to clarify some of the confusion and touch on how various types of trust-holding impacts completing a ...
In the first part of our series concerning entity selection for owning real estate, we addressed sole proprietorships and tenants in common. Here we examine the business and tax law considerations concerning partnerships.
General Partnerships
A general partnership is essentially an association of two or more people to carry on a business as co-owners. No written agreement is necessary to have a general partnership. One advantage of the general partnership form of ownership is tax benefits. No taxable event happens at the partnership level. In other words, no double taxation occurs in a general partnership. The usual test the IRS uses to determine if a partnership exists is whether the partners share profits and losses, jointly own the capital and assets, and jointly control and manage the business.
General Partnership Advantages and Disadvantages
Other advantages of general partnerships include the following:
Each partner can participate in the management of a general partnership.
Continuity of the general partnership can be established.
The ownership interest in a general partnership is treated as personalty rather than realty.
With the passage of the Tax Cuts & Jobs Act (TCJA) in December 2017, we saw the elimination of Section 1031 exchanges for all types of property except real property. Included within the TCJA is Section 1400Z-2 which established an incentive for investing in Opportunity Zones (O-Zones). Recently, I have spoken with a number of taxpayers who have heard about Opportunity Zones and want to know if they are a viable alternative to a 1031 exchange. My answer is usually “it depends.” Here, I provide an overview of opportunity zones and their differences from 1031 exchanges.
Qualified Opportunity Funds
An investment under the O-Zone code provision and proposed regulations has to be into a...
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