10A — October 11 - 24, 2013 — Mid Atlantic Real Estate Journal


F inancial D igest

By Pamela A. Michaels, Esq., Asset Preservation, Inc. Special Exchanges: Get 360 days to complete


AFE HARBOR GUID- ANCE Many investors tra-

a 1031 exchange, this may be achieved under Section 1031 as a standard delayed exchange as the purchase is within 180 calendar days of the sale. However, as the purchase is for more than the sale, if only a delayed exchange is performed there is approximately $50 million of unused value that the investor could use to defer gain on the sale of another asset. Suppose too that the investor is interested in selling a hotel located in New York City but does not yet have the buyer lined up. Properly structured, the investor could

take full advantage of its $90 million purchase by acquiring the multi family property in a parking arrangement utiliz- ing a Qualified Intermediary as an Exchange Accommoda- tion Titleholder (“EAT”) and entering into a Exchange Accommodation Agreement with the EAT prior to closing on the purchase. Then, under Revenue Procedure 2000-37, the investor has an additional 180 calendar days from the date the multi family property is parked with the EAT to sell additional relinquished prop- erty with the ability to use

such purchase to defer capital gain taxes on an additional $50 million sale. Tax deferred exchanges have been part of the U.S. Tax Code since 1921. Since that time, the government has approved certain methods to structure exchange transac- tions that are so called “safe harbors.” For example, in 1991 the U.S. Treasury issued final regulations that provided important guidance on the structure of delayed exchanges including the 45 day identi- fication period and 180 day exchange period timelines and certain other procedural re- quirements necessary to com- plete a tax deferred exchange safely. On September 15, 2000, the Internal Revenue Service released Revenue Procedure 2000-37 that provided guide- lines for structuring reverse exchanges (a transaction in which replacement property is acquired by an accommo- dating party before the sale of the relinquished property and held as replacement property to complete the exchange). A replacement property may be acquired and held (sometimes called “parked”) by the accom- modating party for up to 180 calendar days. Recently, the IRS provided guidance (See ILM 200836024 we should have a hyperlink to this cite so people can easily see it) approving the combination of a reverse parking arrange- ment exchange and a forward delayed exchange resulting in two sequential 180 day exchange periods associated with one integrated exchange transaction. Since the accommodating party, the “EAT,” in a reverse exchange can only hold the replacement property for 180 days, the relinquished prop- erty must generally be sold by the taxpayer within that 180 day time period. If the parked replacement property is the only property that is desired by the taxpayer to complete the exchange, then the exchange is complete upon the EAT’s transfer of the re- placement property to the exchanger. But what if the parked replacement property is just one of several replace- ment properties desired by the taxpayer? In that event, the standard delayed exchange that commences with the sale of the relinquished property continued on page 18A

desired purchase but not yet be ready to close or even under contract on the asset being sold. By combining a reverse and a delayed exchange, an investor may have as much as 360 days to complete all de- sired transactions and achieve 100% deferral. For example, suppose an investor is under contract to sell a Washington DC hotel for $40 million on December 2, 2013. The investor is also under contract to purchase a multi family property for $90 million on January 1, 2014. If the investor wants to perform

d i t i o n a l l y own assets of substan- tial value. At times, they may wish to sell and as- set and buy another but t h e a s s e t

Pamela Michaels

they initially seek to pur- chase is worth less than what they intend to sell. Further, an investor may have located and be ready to close on the




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