Brendan Greene Greater Boston Exchange Co.
ing capital gains taxes; exchanging several smaller hard to manage prop- erties for one larger easier to manage property; exchanging raw land for rental property to generate cash flow; or even exchanging a rental property in Boston for a rental property in Florida, which may be allowed to later serve as a retirement home. The exchanger assigns his interest in the purchase and sale agreement for his or her relinquished property to the QI. The QI receives the net sale proceeds so that the exchanger does not have actual or constructive receipt of the funds. The QI holds the net sale proceeds until they are needed for the close of the replacement property. The exchanger has 45 days beginning the day after the sale of the relinquished property to identify replacement prop- erty, and will do so by giving written notice to the QI. The exchanger then has 180 days to close on any identified replacement properties. The 180-day clock begins the same day as the
this 180-day period, the sale proceeds are held in a federally insured account with local banks and are held in the name of Greater Boston Exchange Company, LLC. In order for an exchanger to defer all capital gains taxes, there are two general guidelines that must be followed. First, the taxpayer must roll over the entire net proceeds into the replacement property, and second, they must buy property of equal or greater value.
1031 EXCHANGE
A 1031 tax-deferred exchange is a method allowed by Internal Revenue Code (IRC) §1031, whereby an owner of certain investment or business property may defer paying capital gains taxes on the sale of such prop- erty if the owner acquires “like kind” property within a certain period of time. All real estate held for investment or business purposes may be con- sidered “like kind” to any other real estate held for investment or business purposes. For example, raw land can be exchanged for an apartment building. The Exchanger must be able to demonstrate that both the property being sold (the “relinquished proper- ty”) and the property being purchased (the “replacement property”) is held for business or investment purposes. Investors may have a variety of Brendan Greene Greater Boston Exchange Co. Internal Revenue Code (IRC) Section 1031 allows a property owner, who holds property for “the productive use in a trade or business or for investment”, to defer paying capital gains taxes if a property owner sells such property, identifies like kind property within 45 days of the sale, and acquires other like
Using IRC Section 121 the “Principal Residence Exclusion” and IRC Section 1031 tax-deferred exchange in the same transaction
from January 16, 2022 until April 1, 2024, at which time he sells the property for $3 million. John’s gain is $2 million (plus any depreciation he took during the time he rented the property). John and his wife would be eligible for the $500,000 IRC Section 121 Principal Residence Exclusion because, if you look back from January 16, 2024, John and his wife lived in the property for two out of the last five years. In addition, John would be eligi- ble to defer the other $1,5 million capital gain using a 1031 tax-de- ferred exchange if John identifies like-kind replacement property within 45 days of the sale and closes on such property within 180 days of the sale. John would have met the requirements of IRC Section 1031 as the property was held as rental investment property for over two years at the time of sale. Like kind property includes all real estate; that is, any type of real estate may be considered “like kind” to any other type of real estate so long as both the relinquished prop- erty and the replacement property are used for investment or business purposes. If both the relinquished property and the replacement prop- erty are used for investment or busi- ness purposes, then a three-family rental property may be exchanged for a single or multi-family rental home; or a rental condominium unit could be exchanged for a retail shopping center. In summary, with proper tax plan- ning, 1031 tax-deferred exchanges coupled with Section 121 exclusion provide homeowners with great opportunities not only to exclude up to $500,000 in capital gain but also to defer any excess beyond the $500,000 limit. The use of Section 1031 and Section 121 together with the sale of a significantly appreciated principal residence can be a very effective tax-planning strategy. There are many technical tax and legal rules that must be followed in order to achieve tax-deferral treatment under IRC Section 121 and Section 1031. Let us help you plan your next exchange! Brendan Greene, Esq., is a principal in Greater Boston Exchange Company, LLC and is a partner in the law firm McCue, Lee & Greene, LLP, Boston, MA.
two out of the last five years, then the taxpayer would be eligible for the principal residence exclusion. However, the question that arises is whether a taxpayer can use both IRC Section 121, the principal residence exclusion and an IRC Section 1031 tax deferred exchange in the same sale. IRS Revenue Procedure 2005- 14 indicates that it is possible. For instance, Section 4 of the IRS Revenue Procedure 2005-14 states “Taxpayers within the scope of this revenue procedure may apply
kind property within one hundred eighty days of the sale. IRC Section 121, the so-called “Principal Residence Exclusion” allows sellers/taxpayers of prin- cipal residences to exclude up to $500,000 in capital gains taxes (if married and filing jointly) or up to $250,000 (if filing as an individual) so long as the taxpayer has lived in the property two out of the last five years. So, in order to have the principal residence exclusion, if one looks back from the date of sale and the taxpayer lived in the property
both the exclusion of gain from the exchange of a principal residence under IRC Section 121 and the nonrecognition of gain from the ex- change of like-kind properties under IRC Section 1031 to an exchange of property by applying the procedures set forth in this section 4”.
Brendan Greene, Esq. is owner, operator and attorney with the Greater Boston Exchange Company, LLC (a subsidiary of McCue, Lee & Greene, LLP), Boston. For example, on January 15, 2018, John Taxpayer buys/builds a principal residence which cost him in total $ million. John lives in the property with his wife until January 15, 2022. Then John and wife decide to rent the property
581 Boylston Street, Suite 203, Boston, MA 02116 (617) 236-5181 (Tel.), (617) 236-0797 (Fax), TOLL FREE 1-877-423-1031 www.greaterboston1031exchange.com For information, please email us at greene@mlglawfirm.com Greater Boston Exchange Company, LLC was established in 2000 by Attorneys Brendan J. Greene and Mark A. McCue, and is an ancillary business of the law firm of McCue, Lee & Greene, LLP. GBEC is owned and operated by attorneys with over 50 years combined experience in real estate and tax law. Our attorneys are trusted advisors to CPAs, attorneys, residential and commercial real estate brokers and investors, mortgage lenders and other professionals. For information, please email us at greene@mlglawfirm.com Greater Boston Exchange Company, LLC was established in 2000 by Attorneys Brendan J. Greene and Mark A. McCue, and is an ancillary business of the law firm of McCue, Lee & Greene, LLP. GBEC is owned and operated by attorneys with over 50 years combined experience in real estate and tax law. Our attorneys are trusted advisors to CPAs, attorneys, residential and commercial real estate brokers and investors, mortgage lenders and other professionals. 581 Boylston Street, Suite 203, Boston, MA 02116 (617) 236-5181 (Tel.), (617) 236-0797 (Fax), TOLL FREE 1-877-423-1031 www.greaterboston1031exchange.com
PROOF
NE NY REAL ESTATE JOURNAL Tel: 781-878-4540
New Proof
Proof Approved
Changes
PROOF Changes Size: Half 6x4.875 From: JK Run Date: 11/29
Section: NE CRG
2025 FALL PREVIEW
18 October 31, 2025
NE NY REAL ESTATE JOURNAL Tel: 781-878-4540
New Proof
Proof Approved
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