State vs. Federal Treatments for 1031 Exchanges

State Taxation 1031 Exchange

Different states have different treatments for 1031 exchanges and not all of the states comport to the federal standard.

Pennsylvania

One state in particular is Pennsylvania. In Pennsylvania at the state level they don't recognize deferred exchanges unless they’re simultaneous swaps. So the delayed exchanges that we're all accustomed to in which we have 45 days to identify and 180 days to complete - those work fine at the federal level but if you're selling property in Pennsylvania you will not get the deferral on the 1031 exchange if it is a delayed or non-simultaneous exchange.

A Trap for the Unwary

So the trap for the unwary is it you may think that it’s all uniform across the board, but each specific state can have different nuances and interpretations of the tax code. For folks in Pennsylvania you may recognize the gains at the state level but be able to have a partial victory in deferring them at the federal level.

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

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

The Importance of a Purchase Agreement Damages Clause

Purchase Agreement Damages Clause

When you identify a replacement property you may pin all of your hopes of tax deferral on that one property. But when you sign the purchase agreement with the seller you may want to look closely at the damages clause in your purchase agreement. What if you sell the relinquished property, park all of your proceeds with the intermediary, and then the seller refuses to honor their commitment to you in the purchase agreement to perform and close on the sale of your replacement property?

A Prickly Damages Clause

You may need to make sure that the purchase agreement that you’ve signed contains a prickly enough damages clause that you could sue the seller for strict performance that is to give you the benefit of your bargain to receive that unique property. All of your tax deferral is hinging upon your receipt of that property within the 180 day exchange period.

Consequential Damages

Also you may want to look at how that damages clause deals with consequential damages - damages that result as a consequence of your inability to close on the replacement property. If you have a broadly written clause that includes potential consequential damages (i.e. the tax liability that you're going to have to pay in the event that the seller defaults and you can't receive your replacement property within the time frame) you may have what we call a big stick. That is a very strong enforcement mechanism in the terms of the purchase agreement to force the seller to honor their commitment to you and to perform within the times allowed for your exchange.

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

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Earnest Money Deposits in a 1031 Exchange

In this 1031 FAQ video, Jeff Peterson talks about earnest money deposits in a 1031 exchange. Watch more 1031 educational videos here.

  • Start Your 1031 Exchange: If you have questions about earnest money deposits in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Reverse 1031 Exchanges within the Safe Harbor

In this 1031 FAQ video, Jeff Peterson talks about reverse 1031 exchanges within the safe harbor. Watch more 1031 educational videos here.

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

Defer the tax. Maximize your gain.

 

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Defer the tax. MAXIMIZE your gain.

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