Mid Atlantic Real Estate Journal — 1031 Exchange — March 15 - 28, 2013 — 25A
1031 E xchange
By Christine Latulip, Edmund & Wheeler, Inc. Section 1031 and Kids
t first glance, this sounds like mixing business with plea-
in a single year to their child and spouse. That size gift would provide a 20% down payment plus closing costs on a $250,000 purchase! What if you have the desire to help your kids but not the cash to do so? It is possible with Section 1031 to sell a current investment property and use the proceeds to give the kids a head start. Here’s how this works: Exchange a qualified investment prop- erty and replace the value by acquiring a single family property that your kids have selected as your new replace-
ment property. The goal is to go even or up in value so depending on the sale price of the existing or relinquished property, it may be necessary to acquire more than one property. Key to this strategy is to use a Qualified Interme- diary to facilitate the sale as an exchange, don’t touch the cash, and rent the new prop- erty at market price. Because you cannot use preferential treatment with related parties, it is impor- tant to keep good records by fully documenting the new lease arrangement. Be
sure it would be the same arrangement that would be charged to a third party. If this presents a hardship, rent the property to only your child’s spouse. By definition, your in-laws are not related to you. In any case, a fair rent should be charged to keep your investment intent for the first two years after you acquire the new property. You can keep track of your new investment property by making regular visits and coordinating any needed re- pairs with the new tenants (your kids). Depending on the
distance and purpose, trips may be deductible. Sounding better all the time! Upon the death of the prop- erty owner (read dad) the property can be transferred to the kids at a stepped up basis without tax conse- quences. As with any tax strategy, planning and good consulting advice is essen- tial. Just one more reason that Section 1031 is family friendly! Christine Latulip is a senior excahnge advisor for Edmund & Wheeler, Inc. n
sure but it’s rea l l y not t h a t f a r fetched! The traditional method to help the kids a c qu i r e a home would be to provide
a gift or a loan that can be forgiven or repaid over time. The new gift limitation is $14,000 per person, per year. A mom and dad could make gifts that would total $56,000 Delaware Statutory Trusts (“DST’s”) . . . cannot commit one of the “seven deadly sins” of DST ownership. They are as follows: A Trustee: (1) cannot receive new capital after an offering is closed; (2) cannot renegotiate or enter into new mortgage debt unless there is a tenant bankruptcy or insolvency; (3) cannot renegotiate any of its property leases or enter into any new leases unless there is a tenant bankruptcy or insol- vency; (4) cannot reinvest the proceeds from the sale of its property; (5) cannot redevelop property, and in fact is limited to performing only normal maintenance and minor non- structural improvements un- less it is required to do more by law; (6) must hold its reserves in short-term debt obligations; and (7) must distribute all cash, other than normal re- serves, on a current basis. When issues arise that a DST cannot address due to the “seven deadly sins,” it au- tomatically converts into an LLC. While this conversion inhibits investors’ ability to do future Section 1031 trans- actions, it allows property emergencies to be dealt with appropriately. As the commercial property recovery continues, and more investors utilize IRC Section 1031 to defer capital gains, DST’s may be a viable solu- tion for the future of fractional ownership. Timothy Snodgrass J.D. is president of AXXCESS Capital. Axxcess Capital is a marketing Partner for Covington Realty. n continued from page 21A
Our team members have decades of 1031 ExpEriEncE and have collectively executed thousands of successful reverse exchanges. We have applied our ExpErtisE and experience to the creation of state-of-the-art reverse exchange processes that are unsurpassed in the industry in ways that add genuine value to our clients. Allied 1031 exchAnge facilitates 1031 tax deferred exchanges of real property. We pride ourselves on continually providing the best service possible to each of our customers. Our experience and knowledge assures that every 1031 Exchange we handle will be executed correctly. We offer competitive pricing and because the security of our customer’s funds is important to us, we are fully bonded and insured. Allied 1031 Exchange strives to go beyond our customer’s expectations. We look forward to doing the same for you.
Company president genevA MArtinkus has over 20 years of real estate service experience. She previously worked at a regional title company, managing and operating the 1031 Exchange department as well as the Installment Collection and Foreclosure departments. Geneva has superior 1031 Exchange knowledge and can answer any questions you may have. Feel free to contact her directly at (775) 851-0881 .
geneva Martinkus President Exchange Counselor
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