16A — March 11 - 24, 2016 — 1031 Exchange — M id A tlantic

Real Estate Journal


1031 E xchange

By Margo McDonnell, CES, 1031 CORP. 1031 exchanges help owners grow their business and plan their exit


lists and even livestock if it happens to be a farmer relo- cating his farm. Tax Incentives o Take advantage of tax incentives and abatements to relocate to a state or local opportunity zone. o When acquiring new prop- erty secure financing through a redevelopment authority or SBA. Expand Footprint o Sell one facility to acquire several others and expand the company’s footprint. o Sell the company head- quarters or one of its larger properties thru a sale lease-

ost investors real- ize that 1031 tax- deferred exchanges

owners can benefit from a 1031 tax-deferred exchange: R elocation or E xpansion Better Location o Relocate to a new location that makes it easier to serve their customers. Whether it is a better designed property or closer to infrastructures that improve delivery, a 1031 exchange can help. o When relocating, it often makes sense to sell rather than move many of the per- sonal property assets and acquire new ones in the new location. This could include equipment, vehicles, client

back. Leaseback the prop- erty through a triple net lease (NNN) and use exchange proceeds to lease one or more other locations and prepay rents and/or make leasehold improvements. A leasehold interest can be exchanged for fee interest in real property provided the lease term is 30 years or more including options. I ncrease E fficiency and P rofitability •Exchange an outdated, inefficient building for a new facility that is better suited for the company’s growing needs.

•1031 is not just for real estate. 1031 exchanges can also help business owners acquire new state-of-the-art furniture, fixtures and equip- ment to increase productivity and decrease operating costs. Keep in mind that any tan- gible or intangible personal property used for business use or investment can be ex- changed under section 1031. However, when exchanging personal property, the defini- tion of like-kind is less flexible than real property and the replacement property must be within the same asset classi- fication code or the same type of asset if it does not fall into a classification code. •Rolling assets, such a cars, trucks, buses, limousines, trains and aircraft, can be exchanged for newer ones. F ree up C apital •After completing a 1031 exchange and reinvesting all of the equity in the replace- ment property, the business owner can refinance to free up funds to invest in the busi- ness. This refinance should not create a taxable event if planned properly. C apitalize on I ncreased D epreciation O pportunities •Replacement real estate with a greater value than the relinquished property creates “fresh” depreciation write-offs annually. •Tangible and intangible personal property placed into service may be eligible for bonus depreciation. •Ready to try something different? A 1031 exchange enables you to exchange fran- chise agreements, distribu- tion rights, client lists, liquor licenses and many other in- tangible assets. Whether it is a different type of franchise or one old one for two new ones, the gain may be deferred on the real estate, the franchise agreement, furniture, fixtures and equipment. •As business owners look towards retirement, 1031 exchanges can help them ex- change some of the real estate assets of their business for new income-producing prop- erty that will help replace the revenue stream provided by the business. Some net lease properties require little or no management so owners can continued on page 17A D iversification of your B usiness D eveloping an E xit S trategy

p r o v i d e a great vehi- cle to accom- plish their s ho r t and l o n g - t e rm investment obj ect ives . H o w e v e r , exchanges also create

Margo McDonnell

a vast array of opportunities to help business owners grow their business and preserve their wealth. Following are a number of ways business

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