1031 Exchanges for Divorcing Couples

What do divorced people need to know about 1031 exchanges? Here are some things to consider when juggling a 1031 exchange and a divorce.

Financial Issues of Divorce

When you get divorced and receive a property in a marital termination, you may receive 100% ownership of the property or you might split the ownership with your ex-spouse.

Alternatively, your ex-spouse may have a lien against the property you are selling. So if you've been divorced and now you are selling an appreciated asset, you need to be particularly concerned with the tax ramification of your sale of that property. If you own the property 50/50 with your old spouse, each of you as co-­sellers could separately do 1031 exchanges, or one spouse may choose to do an exchange while the other ex-spouse may choose to take their tax hit.

Marital Liens

If you received 100% ownership of the property in the divorce but your spouse maintains a marital lien on the property, you'll need to pay off that marital lien at the closing of the relinquished property. And then when you acquire your new replacement property you want to make sure that your new property is of equal or greater value than your old property, that you've reinvested all of your net proceeds, and that you've offset any debt relief including the marital lien with new debt or new cash in on the replacement property.

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

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserve

What Bankers Need to Know About 1031 Exchanges

If you're a banker you are a relationship manager which means that you're always looking for ways to bring more value to the representation of your clients. Bankers know their clients’ situations and often can see opportunities that their clients don't even realize are in front of them. Here are a few things bankers need to know about 1031 exchanges in order to help their clients.

Introducing your Client to a Qualified Intermediary

One of the most important opportunities that a banker has is to make that critical introduction to a qualified intermediary when their client is about to sell a property in what could be a fully taxable transaction. If the banker has their eyes open and sees the opportunity they can save their client hundreds or thousands of dollars by showing them the benefits of a 1031 exchange. Rather than selling the property outright in a taxable transaction, since you're probably already buying another property why not use a qualified intermediary to defer those gains indefinitely.

Nothing puts a smile on your client’s face bigger and better than when a banker shows a client how to save hundreds or thousands of dollars in taxes. That is truly bringing benefit to the relationship between the banker and the client.

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

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserve

Non-Safe Harbor 1031 Exchanges

Many people are interested in reverse 1031 exchanges but they are not interested in the 180 holding period cap. The big complaint about rev proc 2037 is that you are only allowed to park a property for up to 180 days, and you can't do much in 180 days. This is especially true if you're doing a construction reverse exchange where you want to construct an enormous amount of improvements. Here are some important things to remember about non-safe harbor 1031 exchanges.

Rev Proc 2037

It's important to note that the IRS does not necessarily say that non-safe harbor exchanges are bad, or make any judgments about them, they just say “if you want to be inside of the safe harbor, stay within the four corners of this revenue procedures.”

Why would you ever want to go outside of the safe harbor? The primary reason is if you need to park a property for longer than 180 days.

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

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved

The Benefits of a Build-to-Suit 1031 Exchange

Sometimes taxpayers will sell their relinquished property and want to buy a new replacement property that is built specifically to their specifications. This article will focus on the rules and regulations that govern build-to-suit 1031 exchanges.

General Build-to-Suit Rules

The general rule for build-to-suit exchanges is that you can’t construct improvements on land that the taxpayer already owns. The IRS takes the position that any improvements you construct on the land that you already own don't count for the 1031.

So in order to do a build-to-suit construction exchange, the taxpayer sells their old relinquished property and the money comes to the intermediary and is held in an escrow account. Then the intermediary forms an LLC to be the straw man purchaser that acquires title to the new property and holds title to it while the improvements or remodeling is completed.

The Benefits

The idea is that the taxpayer gets two awesome benefits:

1. They get a property built to their specific needs and specifications.

2. They get to defer the gains built into this property built to their specific needs.

Take this example: you sell a relinquished property for a million dollars, buy a piece of raw land for five hundred thousand, and then you make construction improvements of five hundred thousand dollars or more during the 180 day exchange period, then you get to defer every penny of tax. You have acquired or received a replacement property of equal or greater value than what you relinquished. And the beauty of a build-to-suit is you get to construct those improvements to get the requisite value up and you get to construct them to your specific values and needs.

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

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved

The History of 1031 Exchanges

Many people have questions about the history of section 1031. In this article we will talk about the origins of 1031 exchanges – how they came to be and what they look like today.

A 1031 History Lesson

Going back to 1921, there have been provisions in the Internal Revenue Code that have allowed for the tax-fee swapping for exchanges in property. These iterations of Section 1031 have survived the overhauls of the Internal Revenue Code of 1939, 1954, and the most recent comprehensive revision in Tax Reform Act of 1986.

The big development in the 1031 world came from the Starker decision wherein a non­simultaneous exchange occurred - see Starker v.United States, 602 F.2d 1341 (9th Cir. 1979). This was the first deferred exchange where a taxpayer sold a relinquished property and didn’t instantaneously receive the new replacement property, but instead received the replacement property subsequent to the disposition of the old property. Essentially, this was the first “deferred” or “delayed” exchange where the replacement property came in later.

The Benefits of a Deferred Exchange

The benefits of a deferred 1031 exchange are that you don't necessarily have to line up the stars so that you can sell the relinquished property and instantaneously receive your replacement property. Instead, under the current Treasury Regulations you can sell the relinquished property on day 1 and receive your replacement property up to 180 days thereafter.

Additionally, you don't have to contract directly with the same party to receive your replacement property. You can sell your relinquished property to party A, and receive your replacement property from somebody completely different, party B. The benefits of a deferred exchange are that you have much more flexibility in time and in the relationships with the parties to structure a clean sale of your relinquished property to a third party purchaser and structure a clean purchase from someone completely different up to 180 days after you sold your old property. This gives you much more flexibility to get deals done and to defer the taxes.

The modern Treasury Regulations also require you to designate or identify your new replacement properties in writing within 45 days after the closing of the sale of your old relinquished property. For more information on identification rules see our Primer on 1031 Identification Rules.

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

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved