Explaining The 1031 Identification Period & Exchange Period

 1031 Identification Period

There are two timelines that must be followed for a 1031 exchange to be successful.

Identification Period

This is the period during which the party selling the property must identify other replacement properties that he proposes to buy. It is scheduled as 45 days from the day of selling the relinquished property. The 45 days timeline has to be followed under any and every circumstances and is not extendable even if the 45th day falls on a Saturday, Sunday or any legal holiday.

Exchange Period

This is the period within which the person who has sold the relinquished property must receive the replacement property. It ends at 180 days after the date on which the person transfers the property relinquished or the due date for the person's tax return for the taxable year in which the transfer of the relinquished property occurred. According to 1031 exchange rule about timelines this 180 day timeline has to be adhered to under any circumstances and is not extendable even if the 180th day falls on a Saturday, Sunday or any legal holiday.

Property Exchanges Under Section 1031

Under section 1031 of the Internal Revenue Code, any US taxpayer is able to defer their capital gains taxes on the sale of real estate, provided they meet the requirements. The best way to ensure that you meet all of the necessary requirements is to consult with a 1031 exchange facilitator. At Commercial Partners Exchange Company, our intermediaries have two decades of experience working with taxpayers on their exchanges. Contact us today to learn more about our services and get your exchange up and running!

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

 

What to Know About 1031 Exchanges Involving Gifted Property

 Gifted Property

Have you received property as a gift? Is the property valuable? Do you think you might sell the property in the future a big profit?

You may be wondering how gain is calculated when you sell property that you received as a gift.

How to Save Money on Taxes

When you sell a property (such as a capital asset like land), the difference between the sale price and the seller’s basis in your property (which is usually its previous cost), is either a capital gain or a capital loss.

A capital gain occurs when your property sells for more than your basis. A capital loss occurs if your property sells for less than your basis.

What is Your Basis:

When you are gifted a property, you take the property with a carry over basis.  That means that your basis is the same as the basis of the person who gave it to you. 

Another way of saying this is your carry-over basis (as the recipient or donee of the gifted property) is the same basis as your donor’s; the basis is simply shifted over when the gift is made to you.  [IRC Section 102  Gifts and Inheritances of property are not included in the gross income of the donee at the time of the gift if donor was acting out of love, affection, admiration, respect, etc.]

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

Can You Exchange US Property for Foreign Property Using Section 1031?

 Foreign 1031 Exchange

The rules on foreign exchanges are set out in I.R.C. Section 1031(h).

Remember that in order to qualify for tax deferral, the exchange must be of like-kind property. In 1031(h) Congress made it so property located in the United States and property located outside the United States are NOT considered to be like kind.

1031 Exchanges Involving US Territories

The next Logical Question is what about US Territories such as: Guam, Puerto Rico and the U.S. Virgin Islands. Can You exchange US Property for property in the US Territories?

According to Private Letter Ruling 200040017, the answer appears to be a limited YES but the authority is ONLY to the U.S. Virgin Islands and ONLY if the USVI Replacement Property is held to produce income.  Guam and Puerto Rico may not qualify because the IRS has not ruled on specifically on them.  The Internal Revenue Code only defines the "United States" to include states and the District of Columbia.

It seems strange, but the Internal Revenue Service has ruled that property located in the U.S. Virgin Islands qualifies for 1031 like-kind exchange treatment, provided it produces income for U.S. citizens and has left out Guam and Puerto Rico.

Foreign to Foreign 1031 Exchanges (Involving Only Non US property)

Remember US taxpayers can be taxed on income earned anywhere even income earned outside of the US.

One interesting point to keep in mind is that foreign property can be exchanged for other foreign property so theoretically, a US tax payer could exchange Non-US property for other Non-US property.  Any US taxpayer’s investing in other counties who sells foreign property held for investment or for use in a trade or business and who then buys other like-kind foreign property that’s also held for a qualifying purpose, should be aware that foreign property can be considered to be of like-kind to other foreign property.  So yes You Can Exchange foreign property of for other foreign property!

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

 

Unexpected Recapture In a 1031 Exchange

 Unexpected Recapture 1031 Exchange

Normally in a 1031 exchange, you defer all of your capital gains (both from appreciation in value and depreciation deductions taken over the years) by acquiring a like-kind replacement of equal of more value; and equal of more equity.

In Tax Law Nobody Wants Surprises

There are some situations when the relinquished property will have some tax complications (snakes in the grass) that could cause you to unexpectedly recognize gain.  To make matters worse, the surprise gains could be characterized as ordinary income and taxed at higher rates than mere capital gains rates.

What Do You Need to Check Out?

Here are some things to check out with your CPA, accountant or tax attorney:

Tax Credits

When Congress wants to encourage investors to do something they provide tax incentives.  One of the most effective tax incentive is to offer tax credits.  Tax credits are more valuable than mere deductions because they off-set your tax liability dollar-for-dollar. The problem is that tax credits on your relinquished property for either rehabilitation expenditures under Section 47; or from low income housing under Section 42 may be recaptured. Both of these Tax Code Sections allow for recapture of the amount of the tax credits. It is always prudent to check with your accountant BEFORE you sell just to make sure you do not have any problems with old tax credits.

Special Recapture for Rapid Deprecation

If you were able to take rapid deprecation under Section 179 or you qualified for bonus deprecation for investment in the Gulf Opportunity (GO) Zone areas impacted by hurricanes Katrina, Rita, and Wilma, then you need to check into the recapture provisions of those specific programs if your property ceases to be Qualified GO Zone Property.

Section 1245 Gain

Cost segregation engineering studies are often used by property owner to peel out those components of a piece of real estate that can be more rapidly deprecated.  A typical commercial building is deprecated over 39 years.  That is a long deprecation schedule.  A multi-family apartment building can be deprecated over 27.5 years.  Certain components of real-estate can be re-classified and more rapidly deprecated over a 5..10..15 year schedule. Those components can cause you to have recapture, unless you are mindful and when you buy your replacement property you buy qualifying property that matches up component for component with those Cost Segregation properties that were more rapidly deprecated.

  •  Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

 

Preparing for a 1031 Exchange in 2019

 1031 Exchange in 2019

As 2018 comes to a close, many taxpayers are looking to the future to see what 2019 will hold. For some, that includes a 1031 exchange of real estate. In this article, we are going to offer some tips to best prepare yourself for a 1031 exchange in 2019.

Start Preparing Now

Preparation is the name of the game when it comes to 1031 exchanges. The earlier you begin the preparation phase, the more likely your exchange will succeed. Don’t wait until the first of the year to begin preparations for your exchange. Start the initial stages of the process early by contacting a qualified intermediary.

Compile the Necessary Information

There is a lot of information you need to give your intermediary in order for them to set up the exchange for you. It’s a good idea to start compiling this information early in the process so you can give it to the intermediary when needed.

Talk to Your CPA

It’s always a good idea to consult with your CPA or accountant regarding your 1031 exchange. Your exchange will have a significant impact on your tax filing so you need to make sure you and your tax planner are on the same page.

Start Your 1031 Exchange in 2019!

If you’re thinking of doing a 1031 exchange in 2019 – now’s the time to prepare! Contact a qualified intermediary to see if your property qualifies and get started with the process. Give us a call today to learn more about our 1031 exchange services and set up a time to chat with our qualified intermediaries. Our primary office is located in downtown Minneapolis but we work with clients throughout the state of Minnesota and around the United States.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved