Posts Tagged ‘1031 exchange’
Friday, October 23rd, 2009 by Moore McLaughlin
Moore McLaughlin, Esq., CPA, CES® proudly announces that Alexandra L. Hart, Vice-President of All States 1031 Exchange Facilitator, LLC has passed the grueling Certified Exchange Specialist® examination and has received the designation of Certified Exchange Specialist® (CES®), a title granted to professionals who demonstrate comprehensive knowledge of Section 1031 of the Internal Revenue Code. An exam is given annually at the Annual Conference of the Federation of Exchange Accommodators (FEA). Alexandra sat for and passed the exam on October 1, 2009 in Orlando, Florida.
The FEA is the only national trade organization formed to represent the Qualified Intermediary (QIs) industry and the interests of consumers who use these services. FEA also represents the legal/tax advisors and affiliated businesses that are directly involved in Section 1031 Exchanges. Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment. The CES® Program was established by the FEA in 2003 to formally recognize individuals who have satisfied an experience requirement and demonstrated through testing, their comprehensive knowledge of Section 1031 and the facilitation of like-kind exchanges.
Alexandra’s CES® designation places her in an elite group of professionals who have demonstrated exceptional knowledge of 1031 exchanges. I am proud to have Alexandra working for All States 1031 Exchange Facilitator, LLC. The real beneficiaries of Alexandra’s vast knowledge are the exchangers who exchange with us.
I encourage everyone to send a hearty congratulations to Alexandra at AHart@AllStates1031.com.
Tags: 1031, 1031 exchange, alexandra hart, Alexandra L. Hart, All States, Certified Exchange Specialist, CES, FEA, Federation of Exchange Accommodators, Moore McLaughlin, QI, qualified intermediary
Posted in 1031 News, All States News
Sunday, October 18th, 2009 by Moore McLaughlin
In order for property to qualify under section 1031, the property must be held for productive use in a trade or business or held for investment. Property that is held primarily for sale is disqualified under section 1031. One of the most uncertain areas of the law under section 1031 is whether a particular piece of property is held for investment. The IRS has never given any hard-and-fast rules. Taxpayers must rely on a hodge-podge of cases and rulings.
A recent case from a state court in Oregon addresses the issue of whether a parcel is held for investment or held primarily for sale. In Bahr v. Oregon Department of Revenue, Oregon Tax Court - Magistrate Division, TC-MD 080525B (2009), the Oregon Tax Court ruled that a bulk sale of raw land, originally acquired for investment, which was subdivided into lots, partially improved and sold to a builder was held as an investment and therefore qualified for tax deferral under Oregon law which follows IRC §1031 for state income tax purposes.
In Bahr, taxpayers (a husband and wife) were in an informal partnership with their sister and brother-in-law. In 1996 the partnership acquired five acres of raw land in a §1031 exchange for a duplex. At the time of this initial exchange the partnership was considered an investor in the property. In 2001-2002 the other partners built a personal residence on a portion of the property. In March 2004 partnership applied to subdivide the land into 27 individual lots. At the time this application was submitted, the partnership agreed to sell 22 of the lots to a developer. The partnership’s subdivision application was approved in 2004. Pursuant to their agreement with the developer, the partnership immediately began infrastructure improvements on the lots including placing roads, underground utilities, excavation, engineering, permits and other indirect costs. The first lots were sold to the developer in early 2005. The decision implies that the taxpayers acquired replacement property in an otherwise valid §1031 exchange to defer gain on the lots sold to developer.
The Oregon Department of Revenue argued that the partnership’s investment intent changed after it received the offer from the developer and subdivided the land into individual lots. Accordingly, it asserted that the land was held “primarily for sale” as opposed to for “investment” thus disqualifying it from §1031 treatment.
In determining whether the land was held primarily sale the court listed factors considered in §1221 (capital gain) cases: (1) purpose for which the property was initially acquired; (2) purpose for which the property was subsequently held; (3) extent to which improvements, if any, were made to the property by the taxpayer; (4) frequency, number and continuity of sales; (5) extent and nature of the transactions involved; (6) ordinary business of the taxpayer; (7) extent of advertising, promotion or other active efforts used in soliciting buyers for the sale of the property; (8) listing of the property with brokers; and (9) purpose for which the property was held at the time of sale. The court concluded based on the length of time the property was held and the taxpayers’ lack of experience in subdividing and selling lots that these factors weighed in favor of investment intent. The court appeared to weigh heavily that the taxpayers engaged in the development activities to maximize their return on their initial investment and that they only did the minimum necessary to complete the sale.
Because the case was decided by the Oregon Tax Court this decision cannot be used as authority in IRS audits, and it is presumably of little precedential value outside of Oregon. However, it does show that according to this court at least, subdivision of land, even coupled with substantial land improvements, is arguably not enough to convert a property owner from an investor into a dealer where there was no actual building, active marketing of the subdivided property, or establishment of a sales organization.
Please contact attorney F. Moore McLaughlin, owner of All States 1031 Exchange Facilitator, LLC, by e-mail at fmm@allstates1031.com or Alexandra L. Hart by e-mail at ahart@allstates1031.com for more information about this case or about a particular scenario.
Tags: 1031, 1031 exchange, alexandra hart, Alexandra L. Hart, All States, Bahr v. Oregon Department of Revenue, capital gains tax, investment, investment property, Moore McLaughlin, Oregon Tax Court, QI, qualified intermediary, qualifying property
Posted in 1031 Exchange Basics, 1031 News, Qualifying Properties
Monday, October 12th, 2009 by Moore McLaughlin
In our continuing effort to help investors understand the rules of 1031 exchanges, we present two more common myths. Avoiding these myths and misconceptions will allow investors to maxmimize the return on their investments by reducing the amount of taxes they pay.
Myth No. 9
I only have to reinvest my gain. Or, I only have to reinvest my cash proceeds.
If Alexandra and I have heard this once, we have heard it a million times. The general rule of 1031 exchanges is that the exchanger must buy a replacement property that is equal to or greater in value than the relinquished property. The 1031 rules require the exchanger to reinvest their adjusted sales price, not just their gain or cash equity. The reason is because Section 1031 requires an exchanger to receive like-kind property. Luckily, all United States real estate is like-kind to all other United States real estate, regardless of the type or grade. Non-like kind property (called boot) typically consists of cash or debt relief. To the extent that an exchanger trades down in value (i.e. buys a replacement property of less value than the relinquished property), than the exchanger receives boot, in the form of cash or debt relief equal to the amount of the trade down. Net boot received will always be taxed, to the extent of the taxpayer’s gain. However, often times, paying some tax is better than paying all the tax if no exchange is completed.
So, the easy rule to remember is for the exchanger to buy a replacement property or properties of equal or great value than their relinquished property or properties. The good news, though, is that once these rules are understood, the exchanger realizes that he or she can trade down in value a little without blowing up the whole exchange. Instead, a small amount of gain is recognized, while the balance of the gain is deferred. Thus, the 1031 transaction is still worth doing. To learn more about partially tax-deferred exchanges or taking some cash at the closing, please click here.
Myth No. 10
I can exchange my primary residence tax-free under section 1031.
A primary residence does not qualify under section 1031. In order for a property to qualify under section 1031, the property must be held for the productive use in a trade or business or held for investment. Under these rules, a primary residence is held for personal use, therefore it is not deemed to be held for investment. Thus, a primary residence generally does not qualify under Section 1031.
However, Section 121 provides for gain exclusion on the sale of a principal residence, if certain criteria are met. If these criteria are satisfied, up to $250,000 of gain may be excluded (up to $500,000 for joint returns). The basic rule of section 121 requires that the seller own and occupy the property as a primary residence for at least 2 out of the previous 5 years. However, if the property was acquired as part of a previous 1031 exchange (and the taxpayer converted it from a rental property to their primary residence), than the taxpayer must own the property for 5 years and live there as a primary residence for at least 2 out of the 5 years before they may be eligible for the 121 exclusion. Furthermore, effective January 1, 2009, an amendment to the 121 exclusion will affect the amount of gain exclusion allowed for primary residences with a rental history (AKA “non-qualifying use”). In the event that the gain exceeds this exclusion amount, capital gain must be recognized and cannot be deferred even if a replacement primary residence is purchased. If you are interested in learning more about the tax consequences of the sale of your home, you should consult an experienced tax attorney or CPA to learn more about section 121. It is especially important to consult with your tax advisor if your primary residence has or had an investment or business-use component (i.e. a home office or rental unit). Certain combination or consecutive use properties may allow for the combination of section 121 and section 1031, thereby maximizing the potential tax exclusion and deferral.
So, even for those lucky homeowners who say “…but my home is the best investment I ever made,” I say, “That may be true, but generally, it does not qualify under section 1031.” We continue dispelling as many 1031 myths as we can. Stay tuned for more 1031 myths in the near future; or call us toll free at 877-395-1031 or contact Alexandra L. Hart by e-mail at ahart@allstates1031.com.
Tags: 1031, 1031 exchange, alexandra hart, Alexandra L. Hart, All States, boot, funds, gain, home, investment, investment property, primary residence, principal residence, QI, qualified intermediary, residence
Posted in 1031 Exchange Basics, 1031 myths, FAQs, Qualifying Properties
Tuesday, October 6th, 2009 by Moore McLaughlin
Our good friend, Gary Richardson, senior loan officer with Shamrock Financial, appeared in the on-line edition of the Providence Business News recently. I have appeared on Gary’s weekly radio show several times discussing 1031 exchanges and other real estate tax topics. Click here for the full Providence Business News interview.
Gary and Shamrock Financial offer many wonderful financing options that can be used in conjunction with 1031 exchanges, as well as in other non-1031 scenarios. For more information about Gary, Shamrock Financial and the types of loan services and products they offer, contact Gary directly at (800) 321-8129 x127 or by e-mail at gary.richardson@shamrockfinancial.com.
Cick here for more information about Shamrock Financial.
Tags: 1031, 1031 exchange, alexandra hart, Alexandra L. Hart, All States, Gary Richardson, Shamrock Financial
Posted in Other
Monday, September 28th, 2009 by Moore McLaughlin
Alexandra Hart and I are still amazed that we hear so many of the same myths and misconceptions every week about 1031 exchanges, what properties qualify and how exchanges work. Unfortunately, many of the myths result in someone not exchanging when a 1031 would have saved a significant amount of taxes. Here are two more myths that we hear as reasons not to do an exchange.
Myth No. 7
In order for a 1031 exchange to work, I have to find someone who has property I want and who wants my property.
Not true. The IRS has allowed so-called delayed or deferred exchanges for many years. For a number of years, no guidance existed on how to handle deferred exchanges. In the late 1970’s, the Starker case held that a 1031 exchange did not have to be simultaneous. Subsequently, the tax law was changed which allowed deferred exchanges, subject to certain limitations.
Now deferred exchanges are the norm. We very rarely see direct swaps of property, although they are certainly allowed. Most exchanges are effected by exchangers who sell their relinquished property to an unrelated third-party buyer and then purchase the replacement property from someone who is unrelated to either the exchanger or the buyer of the relinquished property. In fact, in many cases neither the buyer of the relinquished property nor the seller of the replacement property are doing 1031 exchanges. Although, in many cases they are.
The deferred exchanges must meet several simple rules. The exchanger must acquire the replacement property within the earlier of 180 days from the sale of the relinquished property or the due date of the tax return (including extensions). The exchanger must identify the potential replacement properties within 45 days from the sale of the relinquished property. And, lastly, the exchanger should use a qualified intermediary (QI) or other safe harbor to avoid receipt of the sales proceeds from the sale of the relinquished property. Following these rules, and a few others, will ensure a valid 1031 exchange.
Myth No. 8
If I fail to identify property within 45 days or if I fail to acquire sufficient replacement property during the exchange period, I will lose my money or be hit with severe penalties by the IRS.
Failure of an exchange results in no penalties and you will not lose your money. An exchanger who fails to identify any property during the 45-day identification period will have his or her exchange proceeds returned on Day 46. Likewise, an exchanger who fails to acquire any property during the exchange period will receive the exchanges funds on Day 181. Please click here to read more about at what points during the exchange period the exchanger is allowed to get their money back. The only economic loss is the fee charged by the intermediary, which is typcially minimal compared to the potential tax savings.
A failed 1031 exchange is treated merely as a sale of the relinquished property, subject to whatever taxes would have been imposed had a 1031 exchange not been attempted. Even better, the exchange that begins in one tax year and fails in the subsequent tax year is treated as an installment sale with the possibility of significant tax deferral. Click here for more information on the tax treatement of a failed exchange.
In any event, once sellers become aware of these realities, most realize that they have nothing to fear from a failed exchange and decide to enter into the exchange to preserve the right to defer taxes.
Stay tuned for more posts exposing the myths of 1031 exchanges that keep investors from saving taxes.
For more information on 1031 exchanges, contact Moore McLaughlin by e-mail at fmm@allstates1031.com or Alexandra L. Hart at ahart@allstates1031.com or by call toll-free at 877-395-1031.
Tags: 1031, 1031 exchange, alexandra hart, Alexandra L. Hart, All States, failed exchange, investment, investment property, IRS, Moore McLaughlin, QI, qualified intermediary, Starker, Starker exchange, tax deferred exchange
Posted in 1031 Exchange Basics, 1031 myths, FAQs, Test Your Exchange IQ
Wednesday, September 16th, 2009 by Alexandra Hart
Good news for franchise or business owners! The IRS recently reversed their position on personal property exchanges, thereby allowing 1031 tax-deferred treatment of most intangibles.
The IRS previously issued Technical Advice Memorandum (TAM) 200602034, which concluded that the registered trademarks and trade names of a business entity could not be of like-kind to the trademarks and trade names of another business entity because they were “closely related to (if not a part of) the goodwill or going concern value of a business.” Under Regulation § 1.1031(a)-2(c)(2), the goodwill or going concern value of a business is not of like kind to the goodwill or going concern value of another business.
Using the rationale set forth in TAM 200602034, the IRS later issued Field Attorney Advice (FAA) 20074401F, which concluded that (like the trademarks and trade names discussed in TAM 200602034) newspapers’ mastheads, advertiser accounts, and subscriber accounts were closely related to (if not a part of) the goodwill and going concern value of the newspapers, and therefore were not of like kind under Regulation § 1.1031(a)-2(c)(2). In reaching the conclusion, the FAA reasoned that Newark Morning Ledger Co. v. U.S., 507 U.S. 546 (1993), which holds that an intangible asset is not goodwill for purposes of the depreciation rules if it can be separately described and valued apart from goodwill, is not relevant to the determination of whether intangibles are of like-kind under § 1031.
In a March, 2009 legal memorandum, the IRS reversed its position. In ILM 200911006, the IRS states that it has concluded that the analysis of Newark Morning Ledger Co. does apply in determining whether intangibles constitute goodwill or going concern value within the meaning of Regulation § 1.1031(a)-2(c)(2). Accordingly, intangibles such as trademarks, trade names, mastheads, and customer-based intangibles that can be separately described and valued apart from goodwill can, in fact, qualify as like-kind property under § 1031 (provided the properties satisfy the other requirements of § 1031 including the nature and character rules of Regulation § 1.1031(a)-2(c)(1)). The IRS also states that, in the IRS’s opinion, except in rare and unusual situations, intangibles such as trademarks, trade names, mastheads, and customer-based intangibles can be separately described and valued apart from goodwill. Accordingly, the IRS will not follow the position in TAM 200602034 and FAA 20074401F on this issue.
If you or someone you know is considering selling a business (even if they don’t own the real property), they should consider the tax consequences of the sale of their personal or intangible property. F. Moore McLaughlin, Esq., CPA, CES® is the owner of All States 1031 Exchange Facilitator, LLC and McLaughlin & Quinn, LLC, where he advises business owners and investors on a daily basis. As a tax attorney, Moore’s mantra is, “It’s not what you make, it’s what you keep that counts.” Be sure to plan ahead if you are anticipating a sale so that you can keep as much of your hard earned profit as possible. A 1031 tax deferred exchange is the only legal way to ensure that all of your profit continues to work for you. For a complimentary consultation, please call Moore toll free at (877) 395-1031 or email: Exchange@AllStates1031.com
Tags: 1031 consultation, 1031 exchange, All States 1031 Exchange Facilitator, Attorney F. Moore McLaughlin, business owners, customer based intangibles, customer lists, exchange intangibles, FAA 20074401F, franchise owners, franchise rights, going concern, goodwill, ILM 200911006, intangible property, IRS update, IV, LLC, mastheads, McLaughlin & Quinn, Newark Morning Ledger Co. V. U.S., personal property, selling a business, TAM 200602034, tax attorney, tax deferred exchange, trade names, trademarks
Posted in 1031 Exchange Basics
Saturday, September 12th, 2009 by Moore McLaughlin
Stepping aside from actual 1031 exchange issues for a moment, I want to introduce a good friend of mine, Laura Soussan, and a really cool new software package that she is selling. Spector 360 is a company-wide employee monitoring software that provides powerful, centralized employee internet monitoring. In these tough economic times, it is crucial for company owners and managers to be able to directly quantify employee productivity, especially since payroll is generally a company’s largest expense. Furthermore, new data security laws force many companies to ensure that client and company information is being properly used and secured by employees. I am fortunate enough to have phenomenal employees at both All States 1031 Exchange Facilitator, LLC and at my law firm McLaughlin & Quinn, LLC. So, I need not worry about their internet activities. Even still, I am considering purchasing this software.
Spector 360 records the websites that your employees visit, emails sent and received, chats and instant messages, keystrokes typed, files transferred, documents printed and programs or applications run. Spector 360 takes the recorded internet and computer activities from each of your employees, feeds that information into a database and provides you with more than 50 built-in reports and unlimited customization. Furthermore, the user-friendly design of Spector 360 is perfect for any company’s owners and managers to use, even if they are not necessarily “tech-savvy.”
Spector 360 is amazingly easy to operate and the information is timely and useful. Laura tells me of one company that caught an employee illegally downloading movies while at work. Beyond the fact that she was breaking several laws that could implicate the employer, her actions were slowing down the network to the point that the entire company was being brought to a standstill. The IT guys were unable to locate the problem, but the Spector 360 program honed in on the culprit.
If you are interested in learning more about this program and Laura’s company, CommSat, click here or you can reach Laura by phone at 603-601-0055 or by e-mail at laura@commsat.net.
Tags: 1031, 1031 exchange, alexandra hart, Alexandra L. Hart, All States, employee monitoring software, Laura Soussan, QI, qualified intermediary, Spector 360
Posted in Other
Monday, August 31st, 2009 by Moore McLaughlin
The following are two additional myths that trip up investors and cause them to pay more taxes than they should. This post is a continuation of my previous posts where I am trying to help investors understand the power of 1031 exchanges and not fall into certain misunderstandings.
Myth No. 5
I can’t do a 1031 exchange because I am purchasing the Replacement Property and I haven’t sold my Relinquished property yet.
A reverse exchange is the “flip side” of a deferred exchange, where an investor directly or indirectly acquires a like kind replacement property before disposing of a relinquished property. Once the replacement property is acquired, the investor has 180 days from that date to close on the sale of their relinquished property (or until the due date of their tax return, including extensions). In the current real estate market, owners of real estate often face the prospect of losing the opportunity to acquire a desirable replacement property when the seller of such property is unwilling or unable to wait while the investor completes the disposition of a relinquished property. Sellers in today’s market may have a hard time estimating how many days their relinquished property will be listed on the market for sale before the deal will actually close. Furthermore, it is taking buyers more time than usual to secure financing and get to the closing table. However, in the meantime, perhaps the seller has found the perfect replacement property, or a property that has just been reduced and now the price is right and they need to act quickly. Or perhaps a business owner who is relocating may desire to purchase their new office space before selling their current office space to accommodate a smooth transition of employees and daily operations. A reverse exchange is perfect for these scenarios.
On October 2, 2000 the Internal Revenue Service (”IRS”) issued Revenue Procedure 2000-37 providing guidance on structuring reverse exchanges to avoid IRS challenge. The Revenue Procedure describes a safe harbor for reverse exchanges if certain requirements are met. All States 1031 has been a leader in structuring and implementing reverse exchanges, and has formed an affiliated company, All States Reverse Exchange Facilitator, LLC, to handle the high volume of transactions. Taxpayers contemplating a reverse exchange also need to consider their financing options in advance. It is important to note that if a taxpayer wishes to defer taxes with a reverse exchange, they must contact a Qualified Intermediary like All States 1031 before they close on the purchase of their replacement property. Anyone considering the purchase or sale of investment property is encouraged to call Alexandra L. Hart at All States 1031 toll free at (877) 395-1031 for a complimentary consultation. Planning ahead is the best way to ensure a seamless 1031 exchange, so call today!
Myth No. 6
My partners don’t want to exchange, so I’m going to exchange my partnership interest.
Exchanges of partnership interests generally do not qualify for non-recognition treatment under IRC § 1031. Therefore, when partners want to end their relationship, they cannot each exchange out of their partnership interests into another partnership interest or real property under IRC § 1031. Such transactions can be structured as 1031 exchanges, however, by converting the partnership interest into a real property interest. Once the partners dissolve their partnership and hold the property as tenants in common, they can each defer taxes with their own 1031 exchange(s), or some partners can take cash at closing and pay tax on their portion. The various structures include partnership split-ups, split-offs, buy-outs and formations. Such transactions are often referred to as “drop & swaps” or “swap & drops.” Structuring these transactions is not without tax risk, and requires the advice of an experienced tax professional. When partners are selling investment property and no longer want to stay in the partnership, the key to structuring a successful exchange is to plan ahead. Once the partnership has signed a legal contract to sell, it may be too late to structure a 1031 exchange, since the name on the contract should not be the partnership entity, unless the partnership is staying together to buy the replacement property. However, with proper planning, it is possible for each partner to get exactly what they want out of the sale. The owner of All States 1031, F. Moore McLaughlin, IV, Esq., CPA, CES®, is a licensed tax attorney and nationally recognized educational speaker on this subject. To start planning ahead for a partnership exchange, please call Attorney McLaughlin toll free at (877) 395-1031 for a complimentary consultation.
Educate yourself and don’t fall for these common myths.
Check back for more posts dispelling other myths about 1031 exchanges. In the meantime, click here for more 1031 myths or contact me or Alexandra L. Hart at 877-395-1031 or by e-mail fmm@allstates1031.com or ahart@allstates1031.com.
Tags: 1031, 1031 exchange, alexandra hart, Alexandra L. Hart, All States, Certified Exchange Specialist, CES, investment, investment property, Moore McLaughlin, partnership exchange, partnership interest, QI, qualified intermediary, reverse 1031 exchange, reverse exchange
Posted in 1031 Exchange Basics, 1031 myths, FAQs, Qualifying Properties, Reverse Exchanges
Thursday, August 20th, 2009 by Moore McLaughlin
The following is a continuation from a previous post regarding some common myths surrounding 1031 exchanges. Taxpayers who understand the rules of section 1031 and do not fall for the many myths will save more taxes and see better returns from their investments. Here are two more of the tops myths that Alexandra and I hear daily.
Myth No. 3
I heard that 1031 exchanges are only for the big investors.
Actually, anyone who owns investment property should consider a §1031 exchange before selling. The property size and value do not matter when considering a 1031 exchange. All that matters is the gain and the tax consequences. It’s fair to assume that about a quarter of the gain will go to the IRS in taxes if no exchange is completed. If the property has a low basis or has appreciated in value, the owner should seriously consider a 1031 exchange before selling. IRS code section 1031 is the only legal way to defer taxes on the sale of investment or business-use property. Currently, real estate sales are taxed at the 15% federal long-term capital gains tax rate, plus the state tax rate, plus 25% tax on any depreciation deductions taken. Furthermore, with tax rates rising steeply, it gives investors an even greater reason to do a 1031 exchange and defer that tax. The more taxes that are deferred, the more money the investor can retain to work for them in their next investment. Whether they are selling a small rental unit or an office building, they can simply pay the gain and throw away their hard earned money, or effectuate a §1031 exchange, preserving their capital and building their wealth. Any investor should consult a tax adviser who is familiar with §1031 exchanges to determine the most beneficial strategy.
Myth No. 4
I’ll just have my attorney hold the sales proceeds in escrow while I look for Replacement Property.
IRS regulations specifically exclude the investor’s agent, broker, attorney, accountant, most family members and other related parties or agents who have acted on the investor’s behalf within the previous two years from acting as the exchange facilitator or Qualified Intermediary (QI) for a tax-deferred exchange. To ensure compliance with the latest IRS regulations and updates, the investor should choose a well established full-time Qualified Intermediary, not someone who merely “dabbles” in exchanges. Generally, companies who are exclusively devoted to structuring and facilitating 1031 exchanges have streamlined the process and offer the most competitive fees. Typically, the fee for a QI can range from $750 - $7,500, depending on the QI and the complexity of the exchange. Furthermore, the QI should have instituted financial safeguards such as a fidelity bond and insurance to protect the sales proceeds during the exchange. Ideally, the QI will set up a separately segregated dual signatory exchange account for each exchange client, not a co-mingled or sub-account. Furthermore, sale proceeds should be deposited in a liquid money market account at a stable financial institution or back to ensure preservation of principal and liquidity of funds. Click here to learn about how All States 1031 secures clients’ funds. Finally, be sure to ask the QI certain due diligence questions to make sure that the owners and operators of the company have a comprehensive understanding of the tax code, preferably with tax attorneys, CPAs, and Certified Exchange Specialists® on staff.
Don’t fall for these common myths. You will save money in the long-run and be a smarter investor.
Check back for more posts dispelling other myths about 1031 exchanges. In the meantime, click here for more 1031 myths or contact me or Alexandra Hart at 877-395-1031 or by e-mail fmm@allstates1031.com or ahart@allstates1031.com.
Tags: 1031, 1031 exchange, 1031 myths, alexandra hart, Alexandra L. Hart, All States, commingle exchange security, construction exchange, exchange funds, gain, improvement exchange, investment, investment property, IRS, Moore McLaughlin, QI, qualified intermediary, qualifying property, reverse 1031 exchange, reverse exchange
Posted in 1031 Exchange Basics, 1031 myths, Choosing a Qualified Intermediary, FAQs, Qualifying Properties, Reverse Exchanges
Monday, August 17th, 2009 by Moore McLaughlin
According to Dan Hartman, Senior Mortgage Advisor, Province Mortgage Associates, Inc. located in Providence, Rhode Island, the FHA will 
issue new guidelines affecting condo lending. The new guidelines will be more favorable to allowing commercial space in the development, will reduce the minimum number of units required to just 2, and will permit phasing. These and other changes will have a positive impact of those seeking to do 1031 exchanges. Click here to read Dan’s full article.
While dealer property will not qualify for 1031 exchanges, many people own single condos that have been used to produce investment income, some people convert their primary residence to rental, and some people convert a vacation condo to rental. Remember that pure vacation homes, and second homes, do not qualify for 1031 exchange treatment. When buyers have more options for financing, they can more easily close on the condo of their choice. Alexandra Hart and I see many situations where a seller and a buyer want to close a deal, but the buyer is unable to secure financing. These new FHA guidelines could help condo buyers obtain financing more easily and close more deals.
Furthermore, the new lending guidelines may help finance a reverse or construction exchange. Reverse exchanges are increasingly popular in the current market when it takes an exchanger longer than expected to close on the sale of their relinquished property. In the meantime, the exchanger may need to act quickly to buy a replacement property that has just been reduced to a great price. Another great tool in the current market is the construction or improvement exchange. With a large inventory of short sale and foreclosure properties available, an exchanger may want to acquire a “rehab project” that is of a lesser value than their relinquished property. Instead of paying tax on the “buy down” difference, they can put that money towards improvements to their replacement property tax-free. Construction exchanges can also be used for demolition or if the exchanger wants to raw land and build a new structure.
If you are interested in learning more about these new FHA guidelines, or if you have any financing questions, please contact Dan Hartman directly at 401-263-8655 or by e-mail at DHartman@provincemai.com.
For more information about forward, reverse or construction 1031 exchanges or the types of property that qualify, please contact Alexandra L. Hart at 877-395-1031 ext. 217 or by e-mail at AHart@AllStates1031.com.
Tags: 1031, 1031 exchange, alexandra hart, Alexandra L. Hart, All States, construction exchange, convert, Dan Hartman, FHA Guidelines, improvement exchange, Inc., investment, investment property, Moore McLaughlin, primary residence, Province Mortgage Associates, QI, qualified intermediary, qualifying property, reverse 1031 exchange, reverse exchange, vacation home
Posted in 1031 Exchange Basics, Construction Exchanges, Qualifying Properties, Reverse Exchanges
