Section 1031 is a Potential Congressional Tax Reform Target
 Congressman Dave Camp, Chair of the U.S. House of Representatives Committee on Ways and Means, has formed bipartisan tax reform working groups charged with the task of fact finding about present law. Working group members are soliciting stakeholder input. The information received by Chairman Camp in this process will likely serve as a blueprint for tax reform proposals going forward. Senator Max Baucus, Chair of the Senate Finance Committee has established his own initiative to gather suggestions for tax reform.
All tax expenditures, including IRC Section 1031, are likely to be on the table as potential revenue raisers for tax reform. The Joint Committee on Taxation recently estimated the tax expenditure for Section 1031 like kind exchanges at $42 billion over the 5 year period 2012-2016. This estimate is almost three times last year's estimate of $15.2 billion. This places Section 1031 exchanges among the top ten expenditures and makes it a substantially larger target as a potential revenue raiser for tax reform. Recently, several commentators and opinion pieces have referenced Section 1031 as an unfair loophole or abusive tax avoidance scheme.
The Government Affairs Committee of the Federation of Exchange Accommodators (FEA), the national trade association for 1031 exchange practitioners, has already stepped up its efforts to rebut the misinformation about Section 1031, and to create awareness that Section 1031 is a powerful economic stimulator that benefits a broad base of taxpayers. It is not an unfair loophole or abusive tax avoidance scheme. We cannot do the job alone. We need all of you as this affects the real estate industry as a whole. Within the next week, 1031 CORP. will be providing information on how you can help.
|
With Planning, a Vacation Home Exchange Offers Huge Savings
 During the spring of 2007, IRS provided important guidance regarding the exchange of vacation homes in Moore v. Commissioner, T.C. Memo (2007-134) under section 1031. In this case, the taxpayer acquired a vacation home on a lake a few hours drive from their home. The family visited the property almost every weekend between April and September for several years. After the family relocated and the drive was a few hours longer, they stopped using the property at all. The taxpayer exchanged the property for another lake property that was just a few hours' drive from their principal residence and taxpayer resumed their pattern of using the property almost every weekend during the warm months. Neither property was ever rented. The exchange was challenged and the taxpayer unsuccessfully argued that they held the property for investment and it should qualify. The exchange failed and IRS said holding a vacation home in part with an expectation of profit is insufficient to justifythat the properties were held for investment.
In September 2007, the Office of the Treasury Inspector General of Tax Administration (TIGTA) issued a report stating a need for more oversight of 1031 exchanges. The report advised IRS to provide taxpayers with guidance on the exchange of vacation homes and it also recommended IRS conduct a study of exchanges. A study generally implies the IRS will begin auditing 1031 exchange transactions. The report also targeted those that promote the exchange of vacation homes which could include attorneys, tax advisors, real estate agents and qualified intermediaries.
As promised, the IRS has provided guidance on the exchange of vacation homes in the form of a "safe harbor" provided in Revenue Procedure 2008-16 and creates the ability for vacation home owners of exchanging for another vacation home.
Learn More
|
Things to Keep in Mind when Converting a 1031 Replacement Property into your Primary Residence
 After using the replacement property for business use or investment, you may convert the property to a personal use property. Generally, under Section 121 of the Internal Revenue Code, if used as a primary residence for at least 24 months within the last five years, you may exclude $250,000 in gain ($500,000 if married, filing jointly). However, under HR 4520 (The Jobs Act) signed into law on October 22, 2004, by President George W. Bush, properties acquired in a 1031 exchange must be owned for at least five years and used at least 24 months of the last five years before allowed to take the Section 121 exclusion. Under Section 121, regardless of whether or not a 1031 exchange was involved, you cannot exclude depreciation recapture from May 6, 1997 forward so some depreciation recapture may be due on the sale.
The Housing Assistance Tax Act of 2008, signed by President George W. Bush on July 30, 2008, includes a modification to the Section 121 exclusion of gain on the sale of a primary residence. This modification affects taxpayers who exchange into a residential property, and then later convert the property to a personal residence.
Effective January 1, 2009, the Section 121 exclusion will not apply to gain from the sale of the residence that is allocable to periods of "nonqualified use." Nonqualified use refers to periods that the property is not used as the taxpayer's principal residence. This change applies to use as a second home as well as a rental.
How does this affect 1031 planning?
|
South Jersey Shore Resort Community Real Estate Market Update
For many years, 1031 CORP. presented an annual South Jersey Shore Symposium that included an update on the South Jersey Shore real estate market.
This Symposium was always well attended as investors and Shore property owners looked forward to learning about the current real estate market from some of the top producing real estate professionals at the Shore. To make those market updates available to everyone, we have asked those experts to provide that market update through our newsletter. They have included information not just on 2012 activity but also their thoughts on how Shore real estate will be affected by Superstorm Sandy this year and in years to come.
Many thanks to our experts for sharing sales data as well as their opinions:
|
|
Long Beach Island
Joe Mayo,RE/MAX of LBI
| |
|
Brigantine
Mary LePera, Prudential Fox & Roach, REALTORS®
| |
|
Margate
Paula Hartman, Prudential Fox & Roach, REALTORS®
| |
|
Ocean City
Joseph Sheppard, Prudential Fox & Roach, REALTORS®
| |
|
Sea Isle City
Bill Buchanan, RE/MAX Beach Home Realty
| |
|
Avalon/Stone Harbor
Hugh Merkle, Prudential Fox & Roach, REALTORS®
|
|
Trending this Month...
Last Minute Exchanges
 This has been a trend for quite a while but March has seen a significant increase in the number of people initiating their 1031 exchange just a day or two before the closing of their relinquished property. We have had a few even call us from the closing table! Ideally, you should initiate your 1031 exchange as soon as your relinquished property is under Agreement with a buyer. This allows us to provide your closing agent with ample notice and give you time to review your Exchange Agreement before signing.
|
Message from our President
 | | Margo McDonnell |
Dear Friends,
Happy Spring! We hope all of our friends in the real estate industry are also experiencing the significant increase in business. I've talked with many real estate professionals who all have said the same thing...inventory is really low, prices are increasing, sellers are getting multiple offers and it is now a SELLER'S MARKET! We are hearing these same sentiments in every market.
I am pleased to share our South Jersey Shore MarketWatch. We did intend to share this in our October newsletter which was scheduled for 10/31 day. Needless to say, Superstorm Sandy hit and instead we focused on Disaster Extensions for our friends at the Shore.
We are also seeing an increase in the number of exchanges involving Shore properties. Some are taking advantage of the buying opportunities and low mortgage rates to acquire the Shore property they could not afford in the mid-2000s. On the flip-side, others who have Shore properties have decided they now want to exchange for a property inland or in another part of the country. Fortunately, a 1031 can help you accomplish either objective as well as many others. Our Exchange Team is always available to answer your 1031 exchange questions and discuss your particular situation.
Wishing all of our friends a Happy Passover and a Happy Easter!
Kind 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. |
|
|
Margo McDonnell, CES®
Certified Exchange Specialist®
President
1.800.828.1031 ext. 212
Mobile: 610.680.6896
|
|
Sue Umstead, CES®
Certified Exchange Specialist®
Senior Vice President
1.800.828.1031 ext. 208
Mobile: 610.755.8520
|
|
Marissa LoCascio, CES®
Certified Exchange Specialist®
Senior Exchange Officer
1.800.828.1031 ext. 210
Mobile: 610.742.4351
|
|
Richard Heller, Esq., CCIM, CES®
Consultant
1.800.734.1031
|
|
Bettye J. Matthews, CPA
Consultant
1.800.680.1031
|
|
Joseph F. Szajnecki, CES®
Consultant
1.800.734.1031 |
|
2012 Exchange Reporting Guide
Download our 2012 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!
|
|
Article Exchange
March 6, 2013
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.
|
 Interested in stayingup to date with Marcellus Shale?
|
|
Not a Subscriber? Interested in receiving our Exchanging Times newsletter each month?
Follow 1031 CORP.
"LIKE" 1031 CORP. on Facebook to receive a daily tidbit on 1031 exchanges and related topics.
|
|
