A 1031 exchange is a tax provision that permits a taxpayer to defer and not pay income taxes on the gain on the sale of trade or business asset or investment property, provided the taxpayer reinvests the proceeds into similar property within a certain period of time. In addition, under current law, these deferred taxes can be forgiven at death for up to approximately $ 10,860,000 for a married couple.
The following represents a short description of different types of exchanges that we perform for our clients.
Build to Suit Exchange involves the acquisition and construction of property within the applicable 180 day period.
Delayed Exchange Also referred to as a Forward Exchange, involves the sale of one or more pieces of property, the proceeds of which are held by a Qualified Intermediary, and the Seller identifies one or more replacement property (ies) within 45 days and completes the purchase of the replacement property (ies) within 180 days after the initial sale.
Improvement Exchange This type of exchange involves the use of the funds in the account balance to construct improvements on the property to be acquired.
Similar to other personal property exchanges, Multi Asset Exchanges may involve the sale of a business or business location, such as the disposition of a restaurant.
Parking Arrangement Exchange When it is not possible to carry out the transaction within the typical 180 day period, such as a major construction project, or unique properties. This type of transaction is complex and deals in those situations when the amount of taxable gain may be very large.
Partnership Exchange Many advisors erroneously believe that Partnership interests may be exchanged. This is prohibited by federal tax law. Furthermore, this cannot be done by simply transferring the property right before the sale. This type of transaction involves complex partnership tax provisions.
Foreign Owned Property Exchange Foreign Nationals that own property in the United States must comply with additional rules on withholding of tax at the source.
Property Owned Overseas Exchange by U.S. taxpayers may be exchanged for similar property located overseas. This involves complying with complex rules overseas for the ownership of foreign property by U.S. taxpayers.
Reverse Exchange involves the initial purchase of one or more replacement properties, held in the name of the Qualified Intermediary, for the benefit of the customer followed by the identification of one or more properties to be sold within 45 days and the sale of one or more properties within 180 days.
Tenant in Common Exchange is a certain percentage interest in a much larger real estate development. These properties are professionally managed and permit the new owner to receive monthly income without the aggravation or hassle of actively managing their properties.
Vacation or Personal Use Property Exchange While federal tax law has permitted the conversion of business use property to personal use for many years, recent changes may permit some or all of the gain on its later sale to be tax free to the Owner.
Do you have questions about the various types of exchanges? If so, please don't hesitate to contact us.