Yes we can do your 1031 Exchange for you!
Grand Forks Abstract works with Commercial Partners Exchange Company, LLC to provide you with the very best 1031 qualified intermediary services available. We also offer Reverse 1031 Exchanges, Build-to-Suit Construction Exchanges, and Personal Property (non real estate) Exchanges for breeding livestock, business equipment, and aircraft.
Please see the following information for more details on the requirements and processes of a 1031 Exchange.
1031 EXCHANGE DEFINED
Section 1031 of the Internal Revenue Code states that an exchange of “like-kind” property can be tax-free. Under Section 1031, there is no taxable gain or loss recognized where property held for investment or business is exchanged solely for property of “like-kind” which is also to be held for investment or business. The purpose of the Exchange is to defer taxes on the gain and keep your money working for you indefinitely.
FACTS ABOUT 1031 EXCHANGES:
Both real estate (real property i.e. land and buildings) and personal property (chattel i.e. movable items) can qualify for tax deferred treatment. However, some types of property are specially precluded from 1031 treatment. This preclusion applies to the following: stock in trade or other property held primarily for sale (inventory); stocks, bonds, or notes; other securities or evidences or indebtedness; interests in a partnership; certificates of trust or beneficial interest; and choses in action. Furthermore, vacation homes, second homes and other property used primarily for personal use may not qualify.
Qualified Purpose Requirement
Not all property is eligible for tax deferred treatment. In order to qualify for tax deferred treatment, both your relinquished property (sale) and your replacement property (purchase) should be held by you for productive use in a trade or business or for investment purposes.
Your replacement property (purchase) acquired in an exchange must be "like-kind" to your relinquished property (sale). Like-kind means "similar in nature or character, notwithstanding differences in grade or quality." Almost all real property in the United States is considered like-kind, regardless of whether it is improved (has buildings) or unimproved (raw land). For example, farm land can be exchanged for commercial property; and residential multi family apartment rental properties can be exchanged for industrial real estate. The like-kind requirements for Personal Property (non-real estate) are more restrictive.
There is no clear rule of thumb on how long you must hold your property to qualify for 1031 tax treatment. The code says that you must intend to hold your property for productive use in a trade or business or for investment purposes. The longer you hold and use your property for business and investment purposes, the easier it will be for you to prove that was your intent.
Section 1031 specifically requires that an “exchange” or swap take place. This means your property must be exchanged for another property rather than for cash. You should avoid receiving any cash or other non like-kind property. Your exchange agreement and documentation is what distinguishes a Section 1031 tax deferred transaction from a sale and a new purchase.
You are required to identify your replacement property within 45 days after the day of transfer of your relinquished property, and you must close on your replacement property before the earlier of (a) 180 days after the transfer of yourrelinquished property, or (b) the due date of your federal income tax return including extensions for the year in which your relinquished property was transferred. (An example of this would be if your relinquished property (sale) sold on November 11, 2008. Your 180th day would normally be May 9th, 2008. However, if your federal income tax return was due on April 15th, 2009, your exchange timeframe would end on April 15th, and not May 9th, UNLESS you file for and receive an extension for the filing deadline of your federal tax return.)
Alternative and Multiple Properties
The number of replacement properties that you can identify is limited to:
(1) The Three Property Rule - Up to three properties, without regard to their fair market value.
(2) The 200% Rule - More than three properties, if the total fair market value of all identified properties does not exceed 200% of the total fair market value of all properties relinquished in the exchange.
(3) The 95% Rule – There is no limitation on the number or value of identified replacement properties provided that you actually acquire and close on 95% of the value identified properties within the exchange period.
When you hire Commercial Partners Exchange Company, LLC to be your qualified intermediary, we will provide you with detailed Closing Instructions, an Exchange Agreement, an Assignment Agreement, a Notice of Assignment, a Direct Deeding Instruction and other exchange documents drafted specifically to allow your transaction to qualify as a tax deferred 1031 exchange. Your exchange documents should be reviewed and approved by your CPA or tax advisor prior to your closing.
There are two parts to an exchange transaction:
(1) The "Sale" of your old "Relinquished Property"
(2) The "Purchase" of your new "Replacement Property"
The Replacement Property must be identified in writing within 45 days after the day of your Relinquished Property closing. (Commercial Partners Exchange Company, LLC will give you a form to complete this.)
The entire transaction must be completed by the earlier of:
(1) 180 days after the date of the closing of your Relinquished Property:
(2) The due date of your federal income tax return (including extensions) for the year your Relinquished Property was "sold."
Placement and Security of the Funds
Commercial Partners Exchange Company, LLC will hold your exchange funds in a special segregated escrow account during the exchange.
Preserving your equity makes good business sense! If you have owned investment property for the last several years, it has probably appreciated in value. A “taxable sale” now would result in a reduction in your cash available for another purchase. However, if you exchange your current property for another like-kind property, all of the tax on the gain could be deferred indefinitely. Thus your equity could be preserved rather than lost in the form of unnecessary taxes. While an exchange may not always be the best alternative, it quite often is. Doesn't it make sense to preserve what you have worked so hard to obtain?
TIMING IS EVERYTHING
The crucial elements of a 1031 tax deferred exchange are very much "in the timing". It is critical to have Commercial Partners Exchange Company, LLC prepare your exchange documents and set up the transaction before you close on the sale of your relinquished property.
THE "DELAYED EXCHANGE"
A simultaneous exchange occurs when you directly swap properties with another person. However, if your purchase of your "replacement property" occurs anytime after the closing or "sale" of your old "relinquished property", the transaction is called a delayed exchange. In a delayed exchange, you can not touch or control the proceeds. This is why Commercial Partners Exchange Company, LLC acts as your qualified intermediary to hold your cash proceeds in a special escrow account exclusively for the purchase of your like-kind "replacement property".
For more information about 1031 tax exchanges go to: www.1031PodCast.com
Do you have any 1031 questions?
Please Call toll free 1-877-373-1031 for a free consultation.