What Not To Do
Delayed exchanges, under IRC Section 1031, are the most common exchange format nationwide. The IRS has structured exchanges with strict guidelines for full tax deferral.
Combine Reverse & Delayed Exchange
Tax deferred exchanges have been part of the U.S. Tax Code since 1921. Since that time, the government has approved certain methods to structure exchange transactions that are so called “safe harbors.”
A “Qualified Intermediary” must limit the Exchanger’s ability to access funds held in the exchange account in order to meet the safe harbor requirements specified in the U.S. Treasury Regulations.
1031 Identification Rules
The identification period in a delayed exchange begins on the date the Exchanger transfers the relinquished property and ends at midnight on the 45th calendar day thereafter. To qualify for a §1031 tax deferred exchange, the tax code requires identifying replacement property:
The improvement exchange allows an investor, through the use of a Qualified Intermediary, to make improvements on a new replacement property using exchange equity.
Improvement Exchanges – Additional Requirements
The improvement exchange is a powerful strategy that enables an investor to improve a replacement property. Although this provides tremendous flexibility and opens up a vast array of potential replacement property options, a couple of additional requirements must be followed to obtain full tax deferral.
Real estate investors may take advantage of the tax code to exchange several properties into one replacement property. However, two basic rules can make planning for such an exchange challenging:
The need for a §1031 reverse exchange arises when circumstances require that the replacement property be acquired before closing on the relinquished property.
Revenue Procedure 2000-37 (Rev. Proc. 2000-37), provides guidelines for the taxpayer to acquire the replacement property before the sale of the relinquished property is completed.
Reverse Improvement Structure
A number of “Qualified Intermediary” companies offer improvement and reverse exchanges, but the structure varies from company to company. What differentiates Asset Preservation, Inc. from many others?
Simultaneous Exchange Basics
The simultaneous exchange is the oldest method of performing an IRC §1031 tax deferred exchange. There are basically three ways to perform a simultaneous exchange:
Simultaneous Exchanges – What Not To Do
One of the requirements for a valid IRC Section 1031 exchange is the actual exchange of one property for another property. To qualify for tax deferral, an Exchanger must never have either actual or constructive receipt of the exchange proceeds at any time after closing on the sale of the relinquished property. (See Fredericks, Fred – 1994)
Stages of a Delayed Exchange
1. Negotiate & sign contract as seller and/or assignee.
2. Include language in the contract to establish an intent to perform a §1031 tax deferred exchange.
(Call API for the suggested exchange language)