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It's My Money and I Want It Now!

As the qualified intermediary (QI), 1031 CORP. often deals with Exchangers requesting funds be released from their exchange account for a variety of reasons. What most do not realize is that is not usually up the QI. Treasury Reg. § 1.1031(k)-1(g)(6), often referred to as the g6 regulations, provides three times during the exchange process when funds can be released from the exchange account.

On Day 46 provided all identified replacement property has been acquired or in the event no replacement property was identified;
At any point after Day 45 when all replacement property has been acquired and there are excess funds; or
On Day 181.

If no replacement property is identified within the 45-Day Identification Period, there is no exchange and the sale is a taxable event. All funds are released from the exchange account on the first business day after Day 46. In no event can exchange funds be released and the exchange cancelled until the expiration of the 45-Day Identification Period.

If multiple replacement properties were identified and the desired property acquired but excess funds remain in the exchange account, the Exchanger can revoke all remaining identified properties before midnight of the 45th day. This will allow the excess funds to be released on Day 46.

If replacement property was identified and the Exchanger elects not to acquire one or all of the identified replacement properties, the exchange funds must be held in the exchange account until the expiration of the 180-Day Exchange Period.

When Funds Can Be Released

Franchisees Profit from 1031 Exchanges

Franchise owners have long taken advantage of 1031 exchanges when selling their franchise to acquire more a lucrative location, multiple locations or even diversify the type of franchise. An exchange of a franchise includes numerous assets that may qualify for 1031 tax-deferral treatment.

Any tangible or intangible asset held for investment or for use in a trade or business can be exchanged. When exchanging personal property, the definition of "like-kind" is not as broad and liberal as in a real property exchange. Depreciable personal property is considered "like-kind" if it is within the same product or asset class as the relinquished property given up in the exchange. For example, equipment can be exchanged for equipment and franchise rights can be exchanged for franchise rights. Real estate holdings can be exchanged for other real estate.

In the sale of a franchise, some of the items that can be exchanged for other like-kind property include:

Franchise Agreement / Rights
Furniture, fixtures and equipment
Customer lists
Real estate holdings
Leasehold interests (the remaining term of the lease, including options, will determine if the lease can be exchanged for real estate or another leasehold interest)

Some of the items that do not qualify for 1031 treatment include:

Stock
Goodwill
Inventory
Covenants not to compete
Cash on hand

The franchisee should work with their tax and legal advisors to determine the value of the assets being exchanged and how much replacement property of each class must be acquired. To maximize the tax-deferral, the value of the assets in the replacement franchise(s) must be equal or greater in value and equity. With planning, 1031 exchanges can provide significant benefits to franchisees including the ability to keep their capital working for them in the replacement franchise.

Trending this Month...

Initiating the Exchange at the Last Minute

Clock

We have seen a significant increase in exchange transactions that are being initiated within just a few days of their closing. In the past, we typically had a window of 4 to 8 weeks to set up the exchange before the relinquished property was scheduled to close. This trend seems to be the result of (1) taxpayers/sellers being unsure the sale will actually settle and (2) being indecisive as to whether or not they want to exchange. Keep in mind the Exchange Team can initiate an exchange as late as at the closing although we would prefer at least a few days notice so our client has time to review the exchange agreement before closing.

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 Made Easy Seminar Pic

1031 EXCHANGES MADE EASY

Wednesday, May 16th, 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.

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, May 3rd, 12:00 - 12:45 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!

1031 Exchange of Vacation Homes

Tuesday, May 15th, 12:00 - 12:45 pm EST

This webinar will discuss the sale of vacation homes and when they may qualify for a 1031 tax-deferred exchange. We will also discuss planning strategies. Register Now!

Advanced 1031 Exchange Topics

Thursday, May 24th, 12:00 PM - 12:45 pm EST

This webinar will review topics such as reverse and improvement exchanges, personal property exchanges, related party transactions, installment sales and partnership issues. 1031 basics will not be covered so if you don't know the basics, you are encouraged to take our "1031 Exchanges Made Easy" webinar first. Register Now!

Message from our President

Margo McDonnell

Dear Friends,

Our Exchange Team recently attended the Northeast Regional Meeting of the Federation of Exchange Accommodators (FEA), the national trade association for exchange practitioners. The meeting was the first regional meeting held by the FEA since 2008. We were excited about the meeting for a variety of reasons: (1) great opportunity to network with fellow qualified intermediaries, (2) compare notes on 1031 activity in the NE and (3) most importantly, it signified that the 1031 exchange industry thinks business is increasing enough that members will once again attend these meetings. It was refreshing to hear that everyone is experiencing a nice increase in transaction volume and we share an enthusiasm for the opportunities we have. During the meeting, FEA introduced the theme of our 2012 Annual Conference: Waves of Change, Oceans of Opportunity. I think it is a perfect summary of where the industry is today and a timely reminder that we have to seize the opportunities created by these waves of change. The last few years have been challenging but together, we have hung tough. The tide is changing and now we are riding the waves, having fun and we hope you are, too.

Best regards,

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.

In This Issue

It's My Money and I Want It Now!

Franchisees Profit from 1031 Exchanges

Trending this Month

1031 Seminars

Lunch & Learn Webinar Schedule

Article Exchange

Margo McDonnell, CES®

Certified Exchange Specialist®

President

1.800.828.1031 ext. 212

Mobile: 610.680.6896