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Tax Benefits of a Failed 1031 Exchange
An exchange started near the end of a tax year will often run into the following tax year. The regulations address how to handle incomplete exchanges and cash "boot" received by the taxpayer in the following year.
If you structured your exchange with a "bona fide intent" to complete the exchange, you may elect to report the exchange as an installment sale in the tax year in which the first relinquished property was sold. Under the installment sale reporting rules, the receipt of an indebtedness that is secured directly or indirectly by cash or a cash equivalent is treated as receipt of payment. The regulations provide that exchange proceeds held by a qualified intermediary, such as 1031 CORP., could fall into that category and as long as there is a bona fide intent to exchange, the taxpayer can report cash not reinvested in replacement property as an installment sale. [Reg. 1.1031(k)-1(j)(2); Temp Reg. 15a.453-1(b)(3)(i)].
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Common 1031 Misconceptions That Could Limit Your Options
Based on questions at recent presentations and telephone conversations with investors and advisors, it appears there are still a number of people with misconceptions about 1031 exchanges. To ensure we are all on the same page and no one misses an opportunity to take advantage of this great wealth building strategy, following are the common misconceptions along with an accurate explanation.
Must "Swap" Properties
Occasionally we will run into the "two-party swap" where the taxpayers actually swap deeds but this is not typical. A 1031 exchange is a sale of one property followed by the purchase of another property within 180 days, linked together by documentation. There is no need to have a replacement property identified before you go to closing on the sale of the relinquished property.
Like-Kind Means the Same Thing
The term like-kind when discussing a 1031 exchange of real property simply means real estate for real estate. The type or classification of the property is not a concern as long as it is held for business use or investment. An apartment building can be exchanged for a shopping center and a commercial real estate property can be exchanged for a residential investment property.
All or Nothing
The typical rule of thumb to maximize your tax deferral is to purchase replacement property of equal or greater value than the net selling price (contract sale price minus closing costs) AND equal or greater equity (net selling price minus mortgage payoff) of the relinquished property. If you trade down in either value or equity, you are only taxed on the amount of the trade down. It does not disqualify the entire exchange. Those investors wishing not to reinvest everything can still take advantage of a 1031 exchange and pay tax on the trade down.
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Don't Forget!
IRS has extended the tax filing deadline this year to Tuesday, April 17, 2012. For more information view Publication 509 from the IRS.
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1031 Seminars
Join us at our next complimentary seminar to learn more about 1031 exchanges and their many benefits. You must register in advance. Refreshments will be provided.
1031 EXCHANGES MADE EASY
Tuesday, February 21st, 6:30 - 8:30 pm
1031 CORP., 100 Springhouse Drive, Suite 203, Collegeville, PA
REGISTER NOW by emailing RSVP@1031CORP.com with your contact information! To schedule a 1031 seminar or sales workshop for your group, please call Margo McDonnell, CES® at 1.800.828.1031 ext. 212 or send her an email at margo@1031CORP.com.
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Lunch & Learn Webinars 
Join us for one of our complimentary Lunch & Learn Webinar Series webinars designed to provide quick educational sessions to help you build and preserve wealth. Grab your lunch and log on to a computer near you!
1031 Exchanges Made Easy
Thursday, February 9th, 12:05 - 12:50 pm EST
This webinar will provide an overview of 1031 tax-deferred exchanges and their many benefits. We'll also review the requirements of a successful exchange. Register Now!
Tax Consequences of Selling your Primary Residence or Vacation Home
Thursday, February 23rd 12:05 PM - 12:50 pm EST
This webinar will review the exclusion allowed on the sale of a primary residence under section 121. We will also discuss the sale of vacation homes and when they may qualify for a 1031 tax-deferred exchange.
Register Now!
For a complete schedule of upcoming webinars visit our |
2011 Exchange Reporting Guide
Download our 2011 Exchange Reporting Guide here for information on reporting your 1031 exchange, when to file your tax return, when to file for an extension and other important tax reporting assistance!
Helping to Simplify the Reporting of your 1031 Exchange!
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Message from our President
 | | Margo McDonnell |
Dear Friends,
Wow! The New Year is off to a fast start. Hopefully you are as excited about 2012 as I am! There seems to be positive news about the real estate market and the economy as a whole every day and everyone is talking about an increase in transactions. 1031 CORP. is fortunate to be enjoying a nice surge in exchanges.
A few trends we are seeing with our 1031 CORP. transactions include:
- A sharp increase in reverse 1031 exchange transactions, a trend we mentioned last January. The pace has increased significantly since then and it indicates continued confidence in the real estate market.
- It is taking longer to get the relinquished properties to closing but once they do, the replacement property is acquired quickly - on average in just 43 days.
- More personal property exchanges - everything from construction cranes to printing presses to taxi medallions to distribution rights. It is definitely keeping things more interesting.
I think 2012 is going to be a great year for all of us and we look forward to working with you.
Best regards,
Margo
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About 1031 CORP.
Serving as a nationwide qualified intermediary for 1031 tax-deferred exchanges since 1991, 1031 CORP. strives to provide a superior exchange experience for our customers and their advisors. We provide our customers with enhanced security of funds, knowledgeable exchange professionals and a commitment to keep the exchange process simple for our customers and their advisors. Every member of the exchange team is a Certified Exchange Specialist® and has the experience and expertise to facilitate even the most complex exchange transaction, including reverse, improvement and personal property exchanges. Additional information can be found at www.1031CORP.com.
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Margo McDonnell, CES®
Certified Exchange Specialist®
President
1.800.828.1031 ext. 212
Mobile: 610.680.6896
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Sue Umstead, CES®
Certified Exchange Specialist®
Senior Vice President
1.800.828.1031 ext. 208
Mobile: 610.755.8520
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Marissa LoCascio, CES®
Certified Exchange Specialist®
Senior Exchange Officer
1.800.828.1031 ext. 210
Mobile: 610.742.4351
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Richard Heller, Esq., CCIM, CES®
Consultant
1.800.734.1031
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Bettye J. Matthews, CPA
Consultant
1.800.680.1031
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Joseph F. Szajnecki, CES®
Consultant
1.800.734.1031 |
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Article Exchange
If you have an article you would like to share, please forward it to Margo McDonnell,CES® and we'll include it in next month's reading list.
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"LIKE" 1031 CORP. on Facebook to receive a daily tidbit on 1031 exchanges and related topics.
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