by Prince Licaylicay | Jul 1, 2020 | 1031 Exchange, All Articles, Buying, Investing, Selling
(1) A §1031 tax deferred exchange is for investment property only. Land, commercial, or residential property that has been rented out, all qualify.
(2) A seller must use a Qualified Intermediary (QI) to act as the safe harbor of their funds
(3) You must spend equal to what you sell for minus customary closing costs in order to have 100% tax deferral. Anything below that number will be exposed to taxes, up to the extent of your gain.
(4) The true meaning of Like Kind: to the IRS the term simply means anything held for investment purposes. So you can buy and sell any of the following Land, Residential and Commercial and ALL are considered like-kind, OR you can sell one and buy multiple.
(5) Timeframes are not extendable in an exchange, the seller has 45 days from close to identify what you are going to purchase and a 180 days to close on it. The 45 days are included in the 180 days.
(6) Giving buyer credits are considered unallowable expenses if audited may be considered Boot (taxable cash), so consider lowering the sales price verses giving buyer credits.
(7) Under the (g)(6) of IRC 1031, there are restrictions when you can access you funds, if you have identified a property and you are past your 45days and don’t close on a property previously identified, your funds are held for the full 180 days. Be sure you have a good QI that clearly explains this so your funds don’t get locked up.
(8) Buying and selling from family members has its restrictions, when you buy from a direct member of your family; parents, children, siblings there is a two year hold rule under related party rules. Both you and the family member have to sell/buy and hold for two years or the taxpayer’s exchange could be deemed failed under audit.
(9) The exchange industry is not regulated, what that means is anyone can be an Accommodator. That is scary, chose a nationwide company that has the financial stability and backing to protect your funds.
(10) Most important, The IRS states you must be in exchange agreement with a Qualified Intermediary(QI) prior to closing on the sale of your relinquished property in order to defer any gain when you buy your replacement property; it cannot be done after close.
Sheila Long
Regional Sales Executive
Old Republic Exchange Company
C: 480.341.2032
T: 480.443.6830 -AZ
E: SheilaL@oldrepublicexchange.com
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Apr 16, 2020 | 1031 Exchange, All Articles, Investing
The IRS has extended the deadlines for 1031 tax deferred exchanges. On April 9, 2020, the IRS issued Notice 2020-23 which provides that taxpayers have until July 15th, 2020 to perform all Specified Time-Sensitive Actions, that are due to be performed on or after April 1st and before July 15th, 2020.
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Accordingly, for taxpayers currently in the midst of a 1031 exchange transaction, if either your 45th-day or 180th-day falls between April 1st and July 15th, that date will now be extended until July 15th.
Exchangers that will benefit from an extension of the 45-day deadline are those that closed, or will close, on their relinquished property between February 16th and May 31st.
Exchangers that will benefit from an extension of the 180-day deadline are those that closed on their relinquished property between October 4th, 2019 and January 17th, 2020.
If you believe Notice 2020-23 applies to your situation and impacts your deadlines for 1031 exchanges, please be sure to review this Notice with your CPA or other tax advisor for further guidance. This Notice may be reviewed at the IRS website HERE.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Mar 27, 2020 | 1031 Exchange, All Articles
Lets look at 1031 Exchange Timelines and how the pandemic can impact them. In a 1031 Exchange there are timelines to follow. If a seller of an investment property is in agreement to exchange with a Qualified Intermediary when they close on the relinquished property, the clock starts ticking. The taxpayer has 45 days from closing to identify what they plan to purchase and 180 days to close on the identified replacement property/ies. The problem arises when there is an unexpected hurdle such as the Coronavirus (COVID-19), this puts most in unchartered territory and a place where some located in certain counties are unable to view properties due to Shelter-in-Place rules.
We as an industry are waiting to see what the IRS decides. The Federation of Exchange Accommodators (FEA, 1031.org), are fighting on our behalf and are working with the Treasury and IRS seeking disaster relief for taxpayers within a 1031 exchange:
On March 23, FEA joined members of the real estate coalition in sending a letter to Treasury Secretary Steven Mnuchin and other policy makers at the Treasury Department and Internal Revenue Service, requesting guidance to delay the deadlines applicable to like-kind exchanges that are currently underway due to the COVID-19 crisis. The letter specifically requests that deadlines to identify replacement property and/or complete like-kind exchanges should be extended to the later of 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance, similar to the relief described in section 17 of Rev. Proc. 2018-58 and authorized under Internal Revenue Code Section 7508A.
What does this mean for you as a seller that is amidst the 45-day identification period? As an industry we are all moving forward with the safe harbor rules. The decision to extend must come from the IRS; for now, a taxpayer should keep moving forward knowing their timeline has yet to be approved for extension. We will share any information on extensions as soon as it is released. More to follow…
The above is not meant to be tax advice, seek tax guidance from a CPA or professional tax advisor to verify how this may affect you.
Sheila Long
Regional Sales Executive | Old Republic Exchange Company
C: 480.341.2032
T: 480.443.6830 -AZ
T: 818.543.6584 -S.Cal
sheilaL@oldrepublicexchange.com
OldRepublicExchange.com
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Mar 12, 2020 | 1031 Exchange, All Articles, Buying, Investing
Let’s talk about “like kind” in a 1031 exchange. The Internal Revenue Code provides that a taxpayer may sell property and defer the payment of any capital gains tax if that taxpayer uses the proceeds to acquire like kind replacement property. It is always important to share first, section 1031 of the Code states:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
So, in this discussion I want to highlight what “like kind” really means for the seller of an investment held property. The IRS uses this term however it is broader than it appears to be. Like Kind is any property that is “held for investment” or “for use in a trade or business”; meaning the property sold must be exchanged for other property that is also “held for investment or for productive use in a trade or business.” Most sellers don’t realize this now gives them the ability to sell one type of property and buy another. Giving examples, a taxpayer can sell land and buy residential OR one can sell commercial and buy multi-family. As well, sell one and buy multiple and ALL are considered like-kind. The problem is how this term is interpreted, most taxpayers think like kind must have the same characteristics, or like a vehicle, be the same make and model. That is not the case. This term should really just state: … if such real property is exchanged solely for real property of which is to be held either for productive use in a trade or business or for investment.
With this being said, a tax payer should always consult with their tax or legal advisors. Knowing the true meaning of like kind gives an investor the opportunity to understand there are many alternatives to diversify with another type of investment real estate in a §1031 Exchange. If you want to know more about the Exchange process or review your options, we are happy to assist.
Sheila Long
Regional Sales Executive | Old Republic Exchange Company
C: 480.341.2032 | T: 480.443.6830 -AZ | T: 818.543.6584 -S.Cal
SheilaL@oldrepublicexchange.com
Old Republic Exchange | Old Republic Insurance Group
OldRepublicExchange.com
With 20 years of RE background in commercial and residential, Sheila is part of the national sales team for a Qualified Intermediary dealing with 1031 exchanges.
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Nov 7, 2019 | 1031 Exchange, All Articles, Buying, Investing
Yes if you have any investment property, even if only a parcel of land and you don’t know what a 1031 Exchange is, then you are missing an opportunity to build your wealth through real estate. My goal, I want to educate all homeowners on the basics of a 1031 exchange.
First before we dive into why an exchange and who benefits from it. Let me explain the tax law we are referring to today:
What Does 1031 Really Mean…
IRS section 1031 states: No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.
So why an exchange? Well for one, unlike a primary residence when there is gain on the sale of an investment property the owner must pay taxes on any gain. So the number one reason to exchange is to defer capital gains tax which can be quite substantial. Other reasons, sell one for another for greater wealth building. Or sell one and buy two or more.
Like Kind in a Nutshell…
Now I feel like it is important to explain what “like kind” is. Does the taxpayer have to trade like-for-like such as a condo for condo. The answer my friend, is no! Any property that is held for investment purposes is considered like kind. Readers do you catch my drift? That means you can take a residential property and grow your wealth and maybe do it through commercial or multi-units. OR say you own raw land and want to exchange into a profitable monthly investment home — all of these qualify.
When the Clock Starts Ticking…
Now exchangers beware, As a seller you must be working with a Qualified Intermediary(QI) prior to closing on either property, which we will discuss more below. The IRS states to ensure one does not have “constructive receipt of funds” the QI needs to be involved with the closing title team and all must be done PRIOR to close on the relinquished property.
Once established, there are tight IRS timelines called the Exchange Period, which is 180 days and it starts the day one closes on the first relinquished property. Within this is a small identification window of 45days. This means the Exchanger a.k.a Seller must identify in writing a property or properties they want to purchase within this 45day time period; again this timeline doesn’t start until the day one closes on their relinquished property. Do take note, no changes are accepted after this 45th day and everyday counts even holidays and weekends.
Now this identification window seems to cause a lot of fear and stress. So it’s time to retrain your brain, time to realize if you can look ahead then you can make this process a lot easier than perceived. Once you know you want to do an exchange don’t wait to start looking. You may go into contract on the replacement property before your relinquished property closes. Then you have time to do your due-diligence and make sure all those inspections and appraisal issues don’t arise later in the process.
Who can Help With the Exchange?
Now starting a 1031 exchange is easy, once you find you want to participate in an exchange, you need to find a Qualified Intermediary (QI) also known as an Accommodator. They act as the middleman to hold your funds so you don’t receive “constructive receipt of funds” which is an IRS rule. The QI will help guide you through the process from start to finish. Another note, a title company is not a Qualified Intermediary but they can refer you to one. So don’t assume title holds the funds and be sure to get into exchange contract prior to the close of your relinquished property. Once you close on one you can’t go backwards in the process…another IRS law.
With this being said, know your facts. If you have made a substantial amount of gain on an investment property you need to know a 1031 is the only way to defer your taxes. Don’t let your gain be wasted. Wealth build and keep those dollars working for you verses paying in tax dollars!
Written by
Sheila Long
Sheila Long
Regional Sales Executive | Old Republic Exchange Company
C: 480.341.2032 | T: 480.443.6830 -AZ | T: 818.543.6584 -S.Cal | Mitel: 45229
SheilaL@oldrepublicexchange.com
Old Republic Exchange | Old Republic Insurance Group
OldRepublicExchange.com
With 20 years of RE background in commercial and residential, Sheila is part of the national sales team for a Qualified Intermediary dealing with 1031 exchanges.
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Nov 7, 2019 | 1031 Exchange, All Articles, Buying, Investing
For most investors commercial real estate is leveraged financially. Many of these investments grow in value due to market growth, adding value with improvements like esthetics, new or improved structures and/or good paying tenants. To capitalize on this value the investment(s) are sold and typically rolled into another bigger, better investment(s). In order to for the investor to not be taxed on these capital gains the government has vehicles(plans) in place to allow the investor to defer, put off paying these taxes.
This is where a 1031 Exchange, also known as a Starker Exchange or Like-Kind Exchange, comes in to play. The term 1031 Exchange is defined under section 1031 of the Internal Revenue Code (IRC). Simply, this allows a real estate investor to shift the focus of their investing without incurring the tax liability. There are a few vehicles to choose from to defer the tax liability based on the investor’s overall strategy. This article focuses on the 1031 Exchange and a DST (Delaware Statutory Trust)
https://leveragedcre.com/what-is-a-1031-exchange
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Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
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