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Choosing the right type of 1031 exchange

By RUTH MARTINEZ, for tictriplenet.com 8/23/2007

Under the old law, a taxpayer could defer any gain on the sale of a principal residence by buying or building a home of equal or greater value within 24 months of the sale of the first home.A forward exchange occurs when a taxpayer sells the relinquished property, then later buys a replacement property within delayed exchange safe harbors, such as qualified intermediary and qualified escrow account.The ruling, coupled with an increased interest in 1031 TIC properties, has led to a rapid growth in tenants in common and CORE investments. The sponsor has a master lease with a management company for a fixed monthly amount. A qualified intermediary (also known as an accommodator) is a person or entity that holds the funds received from the sale of the relinquished property, until the replacement property is purchased, thereby ensuring that the rules under section 1031 are abided by. The exclusion, which had jumped from $20,000 to $35,000 in 1976, then to $100,000 in late 1978, was terribly out of date and had not kept pace with inflation.Debt reduction boot which occurs when a taxpayer's debt on replacement property is less than the debt which was on the exchange property. The results indicate that financial advisor monitoring, possibly by reducing information asymmetries, has significant positive effects on the value of REIT acquisitions. The findings indicate that investment grade multi-family housing depreciates approximately 2 1/4% per year in real terms based on total property value.

The simple facts: 1031 exchange

Similarly, the safe harbor accepts financing arrangements that protect the EAT and put risks on the taxpayer, recognizing the underlying economic realities of the situation and ensuring that the parties to the exchange are treated as they intended. Failure to follow the rules closely will jeopardize your exchange. Exchanging one business for another business is not permitted under INTERNAL REVENUE CODE Section 1031. This subsection shall not apply with respect to any costs to which any deduction is allowed under section 59(e) or 291.A forward exchange occurs when a taxpayer sells the relinquished property, then later buys a replacement property within delayed exchange safe harbors, such as qualified intermediary and qualified escrow account. Because the buyer has paid in full, the buyer gets full title at time of closing. Production payments do not qualify for a 1031 Exchange. With low minimum purchase amounts and unlimited appreciation potential, purchasing TIC interests in undeveloped land may be the opportunity you have been looking for to build wealth, diversify your holdings, or to get into the ground floor of investment real estate.The total amount of the investment allocated to the equipment Tangible Drilling Costs (TDC) is 100% tax deductible.

Examining the contract

These are documents that the investor or his/her attorney completes, along with a basic exchange agreement with the intermediary. You must obtain the replacement property within 180 days following the sale of the relinquished property. "Tax preference items" are preferences existing in the Code to greatly reduce or eliminate regular income taxation.[1] For a non-simultaneous exchange, the taxpayer must use a Qualified Intermediary, follow guidelines of the Internal Revenue Service, and use the proceeds of the sale to buy more qualifying, like-kind, investment or business property. This study tests the hypothesis that, due to their superior ability to resolve conflicts of interests between REIT management and shareholders, internally-advised REITs will dominate the externally-advised REITs. The general process for completing is a deferred (Starker) exchange is that you sell your existing property and invest the proceeds into a new property. The easiest and most effective way to accomplish this is by using a qualified intermediary (QI).

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