|
|
|
|||
Jarvis Why would I use it? Can it save me money? How much will it cost? Educate me more? Is there really a tax free exchange? Call me free?
|
Steve Sidars, CEO
Intermediary Services
for 1031
Member of the Federation
of Exchange Accommodators WH The purpose of the Exchange is, in most cases, to defer the payment of taxes on some or all of the capital gain property that is exchanged. The Internal Revenue Service, through Section 1031 of the Internal Revenue Code, recognizes that an exchange of like-kind property is not a taxable event. Under Section 1031 there is no taxable gain or loss recognized where property held for investment or business is exchanged solely for property of like-kind which is to be held for investment or business. FACTS ABOUT 1031 EXCHANGES Qualified Property In general. all types of property, both real and personal, can qualify for tax deferred treatment. However, some types of property are specially disqualified, namely: stock in trade or other property held primarily for sale; stocks, bonds, or notes; other securities or evidences or indebtedness or interest; interest in a partnership; certificates of trust or beneficial interest; and choses in action (i.e. interests in lawsuits). Purpose Requirement Not every type of real property is eligible for tax deferred treatment. To qualify for tax deferred treatment, the taxpayer's property must be held for productive use in a trade or business or for investment. And, in the exchange, the taxpayer must acquire property which he or she intends to hold for productive use in a trade or business or for investment. Like-Kind Requirement Replacement property acquired in an exchange must be "like-kind" to the property being relinquished. Like-kind means "similar in nature or character, notwithstanding differences in grade or quality." All real property is like-kind, regardless of whether it is improved or unimproved and regardless of the type of improvement or interest. Holding Period As a rule of thumb, the original property and the replacement property must be held for a period of one year. Although this is not required by the 1031 section, the holding period is a fact or circumstance to be considered in determining whether the Purpose Requirement has been met. However, in the event the property is acquired from a related person or entity, the holding period is a minimum of two years. Exchange Requirement Section 1031 specifically requires that an exchange take place. That means the one property must be exchanged for another property rather than for cash. The exchange is what distinguishes a Section 1031 tax deferred transaction from a sale and purchase. Time Limits The taxpayer is required to identify the target property within 45 days after transfer of the first relinquished property, and the taxpayer must close on the replacement property before the earlier of (a) 180 days after the transfer of the first relinquished property, or (b) the due date of the taxpayer's federal income tax return including extensions for the year in which the relinquished property is transferred. Alternative and Multiple Properties Whether one property or more than one property is transferred by the taxpayer as part of one exchange, the number of replacement properties that may be acquired is: (1) The Three Property Rule - Up to three properties, without regard to their fair market value. (2) The 200% Rule - More than three properties, if the total fair market value of all these properties at the end of the 45 day identification period does not exceed 200% of the total fair market value of all properties relinquished in the exchange.
EXCHANGE TRANSACTION 1031 TAX EXCHANGE SERVICE, LLC. will provide an Exchange Agreement and other exchange documents defining the exchange transactions and setting forth the obligations of all parties. The exchange documents must be approved by the taxpayer's tax advisor. There are two parts to an exchange transaction:
and
EXCHANGE DEADLINES The Replacement Property must be identified within 45 days of the first Relinquished Property closing. The entire transaction must be completed by the earlier of: (1) 180 days from the first Relinquished Property closing: or (2) The due date of the taxpayer's federal income tax return (including extensions) for the year the Relinquished Property was "sold." PLACEMENT AND SECURITY OF THE FUNDS 1031 TAX EXCHANGE SERVICE, LLC. will customarily hold the funds derived from the transfer of the Relinquished Property in an interest bearing account pending completion of the Exchange. The taxpayer will receive a "Growth Factor" equal to the total interest earned, which will help to offset the expenses incurred. 1031 TAX EXCHANGE SERVICE, LLC. provides the assurance that all funds derived from the "sale" of the Relinquished Property will be available to complete the Exchange.
|
Because preserving your assets
makes sense! If you have owned investment property for the last several years,
it has probably appreciated in value. A sale now would result in a reduction in
assets available for a subsequent purchase. However, if you are to exchange
your current property for another property, all or some of the tax on the gain
could be deferred. Thus your assets would be preserved rather than lost in the
form of taxes. While an exchange may not always be the best alternative, it
quite often is. And doesn't it make sense to preserve what you have worked so
hard to obtain? TIMING IS EVERYTHING
The crucial elements of a 1031
tax deferred exchange are very much "in the timing". It is critical to have
contacted and set up an exchange with an intermediary before you close escrow on
a property to be "sold" in the exchange. The replacement property must be
properly identified within 45 days of the first relinquished property closing,
or by the due date of your tax return (with extensions) for the year in which
the exchange occurred, whichever is earlier. WHAT DOES 1031 TAX EXCHANGE SERVICE, DO? When you and your tax consultant have decided that a 1031 tax deferred exchange is best for you, 1031 TAX EXCHANGE SERVICE, LLC. will see to it that the transaction proceeds according to your plan.
1031 TAX EXCHANGE SERVICE, LLC. will
prepare the exchange agreement and other exchange documents, act as the
qualified intermediary, and provide you with forms and reminder letters to
simplify the process. In a typical exchange, 1031 TAX EXCHANGE SERVICE,
LLC., in its role as the qualified intermediary, will acquire your real property
(the "relinquished property") and sell it to the purchaser. Immediately
("Simultaneous exchange"), or within the maximum 180 days thereafter ("delayed
exchange"), 1031 TAX EXCHANGE SERVICE, LLC.. will use the proceeds from this "sale"
to acquire new real property (the "replacement property") selected by you in
accordance with the exchange law and regulations. The "replacement property"
will then be transferred to you to complete the exchange. THE "DELAYED EXCHANGE" If the purchase of the "replacement property" does not occur at the same time as the "sale" of the "relinquished property", the transaction is a delayed exchange. In a delayed exchange, STEVE 1031 TAX EXCHANGE SERVICE, LLC. will have received sales proceeds to be used within the time limits described above to acquire the "replacement property". Pursuant to Section 1031 and the regulations, this case may not be actually or constructively received by you. As part of this service, 1031 TAX EXCHANGE SERVICE, LLC. will hold and invest the cash proceeds in an interest bearing account until such time as the "replacement property" has been identified by you and can be acquired by 1031 TAX EXCHANGE SERVICE, LLC.
SECURITY OF FUNDS
One of the most important
decision involved in the selection of an exchange intermediary is whether or not
you can trust that company to properly handle and deliver your funds. 1031
TAX EXCHANGE SERVICE, LLC. relieves you of this concern. As an
institutional intermediary (a wholly owned subsidiary of 1031 TAX EXCHANGE
SERVICE, LLC.), we
have the history and strength you can trust. CONCISE AND COMPLETE DOCUMENTATION
Our documentation has been
designed to demystify the exchange process, and includes a complete exchange
agreement which can be used for either a simultaneous or delayed exchange,
exchange escrow instructions, assignments, notices, and other necessary
documentation. EXPERT EXCHANGE ANDS ESCROW KNOWLEDGE Since timing is of the essence, your intermediary must be able to function smoothly with the escrow company. Our staff is comprised of escrow officers who understand not only the exchange process, but also the escrow process. As a result, they are particularly suited to anticipate your needs and questions, as well as the needs and questions of your escrow officer. Additionally, we work closely with your legal or tax advisor to make sure the exchange proceeds according to your plan.
|
||
