12A — March 15 - 28, 2019 — 1031 Exchange — M id A tlantic
Real Estate Journal
www.marejournal.com
1031 E xchange
By Brenda Muller, Asset Preservation 1031 TAX-DEFERRED EXCHANGES: Understand the Power of Exchange &Wide Range of Like-Kind Investment Property
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exchanged for other “like-kind” real property. Taxes which would otherwise be due in a
build significant equity. Via a 1031 tax deferred exchange, real estate investors can defer
applicable. The definition of “like-kind” is very broad for real property and includes land, single fam- ily rentals, commercial and retail, multi-family, farms/ ranches, and virtually any type of real property held for investment. In addition, con- servation easements, agricul- tural easements and perpetual communication easements (cell towers) mineral rights, certain oil/gas offerings are generally considered real prop- erty and may qualify for 1031 exchange tax deferral. Two restrictions are that only U.S. property can be exchanged for U.S. property and personal
property is excluded. An inves- tor that owns a vacation home that meets the parameters of the safe harbor provisions of Revenue Procedure 2008-16 can be considered held for investment. The most common exchange variation is the delayed ex- change. In a delayed exchange, prior to closing on the sale of the relinquished property, the investor engages a qualified intermediary (“QI”) who will facilitate the exchange. The QI, in addition to preparing the necessary exchange docu- ments and safeguarding the proceeds, provides an impor- tant role guiding all parties through the exchange process. The QI, through an assign- ment of the sale contract, sells the relinquished property to the buyer and instructs the closing officer to directly deed the property to the buyer. The QI then receives the sale pro- ceeds and holds these funds subject to certain restrictions. After this closing, the investor has 45 calendar days to iden- tify replacement property (the “Identification Period”) and a maximum of 180 calendar days (or their tax filing date, whichever is earlier) to close on the purchase of replace- ment property (the “Exchange Period”). The QI then, through an assignment of the purchase contract, purchases the re- placement property from the seller and instructs the clos- ing officer to directly deed the replacement property to the investor. For full tax deferral, a real estate investor must generally meet two requirements: (1) reinvest the net equity; and, (2) incur the same or greater amount of debt on the replace- ment property or properties compared to the loan payoff on the sale of the relinquished property. Investors may opt for full or partial tax deferral and any proceeds received are called “cash boot” and a reduc- tion in mortgage liabilities not offset with the addition of new cash is called “mortgage boot.” Savvy business owners and investors in the Mid-Atlantic should consider using 1031 exchanges to expand their businesses or acquire better performing investment prop- erties while deferring capital gain taxes. Brenda Muller is Mid- Atlantic division manager with Asset Preservation, a leading national qualified intermediary.
usiness owners and real estate investors in the Mid-Atlantic who
understand the benefits of a 1031 ex- changes can acquire bet- ter perform- ing invest- ment proper- ties and defer paying capi-
Savvy business owners and investors in the Mid-Atlantic should consider using 1031 exchanges to expand their businesses or acquire better performing investment properties while deferring capital gain taxes.
taxable sale are deferred until property is sold for cash at a later time. Essentially, a 1031 exchange provides business owners and real estate inves- tors an interest-free loan that can be used over and over to exchange into better perform- ing investment properties and
up to four levels of taxation including depreciation recap- ture at 25%, federal capital gains at 15%/20%, state capital gains tax (Maryland ranging from 4.75% up to 5.75% with 3.20% local tax and Virginia 5.75%), and the 3.8% 1411 Net Investment Income Tax, when
Brenda Muller
tal gain taxes. Since 1921, IRC Section 1031 allows business owners and investment prop- erty owners to defer capital gain taxes when virtually any real property held for invest- ment or used in a business is
Why 1031 Accommodators, LLC ® ?
1031 Accommodators, LLC® is a full service intermediary with the experience and expertise to facilitate even the most complex exchange transactions. We have assisted investors, like you, to defer hundreds of millions in capital gains. We pride ourselves on our ability to provide a smooth and worry-free exchange so that you may concentrate solely on locating your new property. Our documentation and procedures ensure strict compliance with the IRC Section 1031 regulations. Essentially, we are here to make it easy for you to build wealth and preserve profits.
Our company was established in 1993. We were one of the first exchange companies in the Northeast.
Kim T. Schooley, our Certified Exchange Specialist, has over 20 years of experience in the business. As well as being a former IRS agent, he is a practicing Certified Public Accountant.
For exceptional service, and more information, contact our Exchange Coordinators at (888) 828-1031.
www.1031accommodators.com
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