8-9-19

14A — August 9 - 22, 2019 — Multifamily Financing — M id A tlantic

Real Estate Journal

www.marej.com

Multifamily Financing

ave you received con- flicting answers to the same question By Lauren Speidel, Exeter 1031 Exchange Services, LLC Unraveling the mystery of 1031 Exchanges: Qualified Use Property H unclear. These gray areas result is different interpreta- tions, confusing or mislead- Qualified Use Property The Qualified Use require- ment is just one of many

(income production), invest- ment (capital appreciation) or business use to satisfy the Qualified Use requirement and qualify for 1031 Exchange treatment. The properties do not have to produce any cash flow, but they must be held for some type of investment or business use. Non-Qualified Use Property Properties not acquired and held for rental, investment or business use generally do not qualify for 1031 Exchange treatment. Properties acquired for repair and maintenance (e.g., rehab) with the intent to

sell (e.g., flip) once the repairs and maintenance have been completed will be considered property held as inventory for sale and not held for invest- ment and will technically not qualify for 1031 Exchange treatment. Similarly, proper- ties purchased for develop- ment or conversion will also be treated as property held as inventory for sale. Property acquired for personal use such as a primary residence, second home or vacation property will not qualify for tax-deferred exchange treatment either. Intent to Hold for Investment Contrary to what you may have heard there is no mini- mum or required holding period to satisfy the Qualified Use requirement. The critical factor is the investor’s intent to hold the property for rental, invest- ment or business use purposes. Investors must demonstrate they intended to hold their relinquished and replacement properties for rental, invest- ment or business use regardless of the length of time they owned the properties should they be audited. The longer the properties have been held for rental, in- vestment or business use the easier it is to prove the investor had the intent to hold for Quali- fied Use. Investors can always change their intent or usage in the future based upon circum- stances or need, but the intent for the first few years should always be to hold the properties for Qualified Use. Documenting Intent Documenting the intent is relatively easy. Correspon- dence between the investor and their advisors is a great way to document intent. Reporting the property as rental or invest- ment property on tax returns, financial statements and loan applications is another easy way to document intent. Rental service listings, property man- agement records, rental agree- ments and rental payments can go a long way in demonstrating intent as well. Like-Kind Property The Qualified Use require- ment should not be confused with the Like-Kind Property requirement. The Like-Kind property requirement simply means that you are selling real estate and must therefore 1031 Exchange into other real estate. Lauren Speidel isMidwest Regional Office Exeter 1031 Exchange Services, LLC. 

from differ- e n t 1 0 3 1 E x c h a n g e Q u a l i f i e d I n t e r m e - d i a r i e s ? You are not alone. There are just too many tech-

Investors must sell one or more relinquished properties and reinvest in one or more replacement properties that are all held for rental (income production), investment (capital appreciation) or business use to satisfy the Qualified Use requirement and qualify for 1031 Exchange treatment.

areas that generates lots of confusion and misleading in- formation in the world of 1031 Exchanges. Investors must sell one or more relinquished properties and reinvest in one or more replacement proper- ties that are all held for rental

ing opinions or incorrect information communicated to investors. We will explain the different interpretations and confusing opinions through an article series entitled Un- raveling the Mystery of 1031 Exchanges.

Lauren Speidel

nical and complicated gray areas in the 1031 Exchange industry. Tax codes, regula- tions and rulings leave many questions unanswered or

Made with FlippingBook - professional solution for displaying marketing and sales documents online