Library items related to real estate exchanges.

Rev. Proc. 2000-37: Reverse Exchanges

Since the promulgation of the final regulations under § 1.1031(k)-1, taxpayers have engaged in a wide variety of transactions, including “parking” transactions, to facilitate reverse like-kind exchanges. Parking transactions typically are designed to “park” the desired replacement property with an accommodation party until such time as the taxpayer arranges for the transfer of the relinquished property to the ultimate transferee in a simultaneous or deferred exchange. Once such a transfer is arranged, the taxpayer transfers the relinquished property to the accommodation party in exchange for the replacement property, and the accommodation party then transfers the relinquished property to the ultimate transferee.

IRS Issues Long Awaited Reverse Exchange Rules

During the one-year period between the promulgation of the 1990 proposed exchange regulations and the issuance of the final regulations in April of 1991, the IRS solicited comments in regard to allowing pure reverse exchange transactions. A pure reverse exchange was understood to mean that the taxpayer would acquire the replacement property prior to the sale of the relinquished property. The final regulations ultimately failed to allow a safe harbor for such a reverse closing sequence.

Deferred Exchanges: Avoiding Traps for the Unwary

Tax-deferred exchanges of real estate have been recognized by the Internal Revenue Code (IRC). The comprehensive set of tax laws created by the Internal Revenue Service (IRS). This code was enacted as Title 26 of the United States Code by Congress, and is sometimes also referred to as the Internal Revenue Title. The code is organized according to topic, and covers all relevant rules pertaining to income, gift, estate, sales, payroll and excise taxes. Internal Revenue Code Internal Revenue Code since the 1920s. Recently, various factors have converged leading to a marked increase in the use of tax-deferred exchanges as an alternative to outright real property sales. Two of the principal factors resulting in the current popularity of tax-deferred exchanges are the increase in the maximum capital gain rate and the practical implications of the legal decision in Starker v. United States. Although simultaneous exchanges had been employed for a long time, the landmark Starker case opened a window of opportunity for valid exchanges on a nonsimultaneous basis.

Understanding Tax-Deferred Exchanges of Real Estate

The concept of tax-deferred exchanges is quite simple: If one trades property for like-kind property and does not receive any cash or other non-like-kind property, then no profit has been made, and there are no immediate tax consequences. While the basis in the replacement property is affected, any gain is deferred until the eventual sale of the replacement property.

Tax-deferred exchanges of real estate and personal property have been recognized by the I.R.C. since the 1920s, and regulations introduced in 1991 made structuring such transactions easier.