8A — February 8 - 21, 2019 — DelMarVa — M id A tlantic

Real Estate Journal


D el M ar V a By Brenda Muller, Asset Preservation, Inc.

Tax Deferral & the Wide Range of Like-Kind Investment property


irginia business owners and real estate inves- tors who understand

taxation including deprecia- tion recapture at 25%, federal capital gains at 15% or 20%, Virginia state taxes of 5.75% and the 3.8% Net Investment Income Tax, when applicable. The definition of “like-kind” real property is very broad and includes land, single family rentals, commercial and retail, multi-family, farms/ranches, and virtually any type of real property held for investment. In addition, conservation easements, ag- ricultural easements and perpetual communication easements (cell towers) min- eral rights, certain oil/gas of- ferings are generally consid- ered real property and may qualify for 1031 exchange tax deferral. One restriction is that only United States property can be exchanged for other United States prop- erty. Even a property owner who owns a vacation home meeting the safe harbor pro- visions of Revenue Procedure 2008-16 is considered holding for investment and which

provides another opportunity for diversification. 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 property owner engag- es a qualified intermediary (“QI”) who will facilitate the exchange. The QI, in addi- tion to preparing the neces- sary exchange documents and safeguarding the proceeds, provides an important role guiding all parties through the exchange process. The QI, through an assignment of the sale contract, sells the relinquished property to the buyer and instructs the clos- ing 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 prop- erty owner has 45 calendar days to identify replacement property (the “Identification Period”) and a maximum of 180 calendar days to close on

the purchase of replacement property (the “Exchange Pe- riod”). 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 property owner. For full tax deferral, an investor must generally meet two requirements: (1) reinvest the net equity; and, (2) incur the same or greater amount of debt. Investors can opt for full or partial tax deferral and any proceeds received are called “cash boot” and a reduction in BALTIMORE, MD — NAIOP Maryland , the lo- cal association comprised of more than 450 professionals working for real estate de- velopment organizations and affiliated companies including architectural, accounting, law and brokerage firms has elect- ed Nicole Wilhelm Smith ,

mortgage liabilities not offset with the addition of new cash is called “mortgage boot.” Savvy business owners and real estate investors in Vir- ginia should consider using 1031 exchanges to expand their businesses or acquire better performing investment properties while deferring capital gain taxes. Brenda Muller is the division manager in Vir- ginia, Maryland and Mid- Atlantic region with As- set Preservation, Inc., a national qualified inter- mediary with an office in Harrisonburg, VA.  business development man- ager for ECS Mid-Atlantic to its Board of Directors. Currently Co-Chair of the NAIOP Maryland Awards and Community Service commit- tees, she also chaired the as- sociation’s ProgramCommittee for more than five years. Smith joined the chapter in 2009. 

the benefits of a 1031 ex- change can acquire bet- ter perform- ing proper- ties and de- f er pay ing capital gain taxes. Since

Brenda Muller

1921, IRC Section 1031 al- lows property owners to defer capital gain taxes when real property held for investment or used in a business is ex- changed for other “like-kind” real property. Taxes which would otherwise be due in a taxable sale are deferred until property is sold for cash at a later time. Essentially, a 1031 exchange provides property owners an interest-free loan that can be used over and over to exchange into better per- forming investment properties and build equity. Via a 1031 exchange, property owners can defer up to four levels of

NAIOPMaryland elects WilhelmSmith of ECS Mid-Atlantic to Board Of Directors

Mid-Atlantic 1031 Exchange Experts

Asset Preservation, Inc. (API), is a leader, both in the Mid-Atlantic and nationally, in the 1031 exchange qualified intermediary industry. API is committed to providing investors the highest levels of experience, expertise and security of funds in the industry. API is relied upon by all levels of investors and Corporate America. Take advantage of smart 1031 exchange tax solutions

Brenda Muller Division Manager Asset Preservation, Inc. 540-532-2834 brenda@apiexchange.com

A National IRC §1031 “Qualified Intermediary”

Call for a free consultation

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