What kind of property qualifies for a 1031 exchange?

Property held for productive use in a trade or business or for investment qualifies for a 1031 Exchange. The tax code specifically excludes some property even if the property is used in trade or business or for investment. These excluded properties generally involve stocks, bonds, notes, securities and interests in partnerships.

What is not included in IRC Section 1031?

Under IRC section 1031, an exchange does not include any recapture of tax credits (e.g., low-income housing or rehabilitation credits) that may be applicable if the property being exchanged has not been held for the requisite holding period (15 years for the low-income housing credit). 2. What qualifies as like-kind realty under IRC section 1031?

What should I know before making a 1031 exchange call?

Before making the call, it will be helpful for you to have information regarding the parties to the transaction at had (for example, names, addresses, phone numbers, file numbers, and so on). During the phone call, the exchange coordinator will ask questions about the property being relinquished and any proposed replacement property.

What kind of interest can be exchanged for real estate?

Partial interests such as TIC’s, DST’s, conservation easements and perpetual mineral or oil rights are exchangeable with other types of real property (including a land contract in which equitable title has been transferred). Even properties with 30 years remaining on the lease can be exchanged for a fee-simple interest in real estate.

Who is the Qualified Intermediary of the exchangor?

The qualified intermediary (QI) is an entity or individual independent of the exchangor and not deemed to be its agent, either objectively or subjectively. Under the objective test, the QI cannot be the taxpayer’s closing attorney or anyone else who has had a business relationship with the exchangor during the last two years.

What makes an exchange a normal transactional expense?

Normal Transactional Costs, or Exchange Expenses, are classified as a reduction of boot and increase in basis, where as a Non Exchange Expense is considered taxable boot. The following table indicates what is and is not considered a Normal Transactional Cost.

When does the second 12 month period begin after the exchange?

* For this purpose, the first 12-month period immediately after the exchange begins on the day after the exchange takes place and the second 12-month period begins on the day after the first 12-month period ends. Here’s an example to analyze this revenue procedure. Let’s assume that taxpayer has owned a beach home since July 4, 2002.

Who is eligible for a 1031 tax deferral?

Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.

How to avoid closing costs in a 1031 exchange?

To avoid the tax, the seller should deposit his own funds to pay those security deposits and prorated rents to the buyer.

What happens to deferred gain in 1031 exchange?

Your basis and deferred gain will be transferred into the New Properties, usually pro rata. And lastly, in doing a 1031 exchange involving multiple purchases, there will need to be a complete set of exchange documents for each New Property which means higher exchange fees.