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The 1031 exchange question

By DIANNE SHELTON, for i-1031exchange.com 8/24/2007

Value stocks are defined as those that carry low prices relative to their earnings, dividends, book assets, or other measures of fundamental value. For example, if you sell a working interest you could replace it with another working interest, a royalty interest, or fee ownership in an office building, apartment building, etc. However, you will most likely still have the pay the QI their fee. Always contact your tax advisor when attempting a 1031 Exchange. The exchange has a time limit before which the dealing will have to be completed. We reccomend that you review multiple tenant in common properties through a tenant in common expert when searching for 1031 replacement property. It is a hybrid of the common installment sale and a structured annuity, and it enables the seller to collect a stream of payments, leverage equity, earn a pre-tax return, and other benefits.Investors seeking less actively managed real estate opportunities often elect to invest in Triple Net Leased Properties (NNN) or Tenancy in Common Investments (also called 1031 TICs). The section of the tax code that allows rollovers is a 1031 exchange.

The road to financial independence

Combining these two tax strategies on multi-use property has been done for years and is a powerful tax-planning tool. Information on 1031 exchange rules, 1031 tax exchange, 1031 tax deferred exchange, 1031 real estate exchange, and 1031 Like Kind Exchanges. Case law and administrative precedents supporting substitution of obligors. Buyer is aware that the seller's intention is to complete a 1031 Exchange through this transaction and hereby agrees to cooperate with seller to accomplish same, at no additional cost or liability to buyer. This type of property sale and reinvestment can either be done through a simultaneous or delayed 1031 exchange.Before starting the 1031 tax exchange process, be sure to consult with your tax advisor, financial planner and/or a 1031 tax exchange expert to ensure that a 1031 tax exchange is the right move for you.

Unlisted properties

One stipulation for deferring your tax payment with a 1031 tax exchange is that, among other things, the replacement property must be of equal or greater value to the relinquished property.In order to take advantage of the qualified intermediary "safe harbor" there must be a written agreement between the taxpayer and intermediary expressly limiting the taxpayer's rights to receive, pledge, borrow or otherwise obtain the benefits of the money or property held by the intermediary.xThe Improvement, Construction or Build to Suit Exchange occurs when the Exchanger uses exchange proceeds to improve (that is make capital improvements) existing property or to improve or develop new replacement property.Although the aircraft exchange process itself is fairly straight forward, the detail required in documenting such a transaction has very specific guidelines and timeframes established by the Internal Revenue Code 1031. While these problems are difficult to redress in the context of a normal real estate closing, when they must be dealt with under the tight time constraints of a tax-deferred exchange, they can prove disastrous.Under current tax laws, the IRS continues to take a broad definition of what like-kind property is. You can exchange any Real Estate investment for any other type of Real Estate investment - for example, vacant land can be exchanged for a warehouse, an office building for an apartment complex, or a vacation home, an orange grove, a golf course, horse ranch, whatever. The master lease is typically a triple-net lease so that the property owners need not worry about the day-to-day operation of the property. The TIC debt structure generally allows for the debt financing to assumed.

1031 Exchange and estate taxes

For this to occur, the AP must be dealt with at arm's length and must bear some of the risk and burdens of ownership. However, there are certain requirements that must be met to do this.Allstate Life was the originator of the structured sale concept and until recently was the only structured settlement annuity company whose product was available for the structured sale transaction. The like-kind 1031 exchange rule is a tax-deferral technique. A typical transaction involves the owner of the property trading a property for another like-kind replacement property. The alternative is to consider a reverse exchange. If your property has declined in value or you have losses from other sources that can offset the capital gain on the sale of your property, then a tax-deferred exchange would not be a good idea. Such treatment by other authoritative bodies will not taint the property for purposes of the safe harbor. However, as long as you are trading up in property value and you invest all of the proceeds being held by the intermediary into the new property, the debt/equity requirement will take care of itself.