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A Qualified Intermediary of 1031 tax deferred exchanges was instituted by the Internal Revenue Service and Department of Treasury in 1991 as one of four safe harbors to eliminate problems associated with taxpayers having access or control to their exchange proceeds. “A Qualified Intermediary under Safe Harbor No. 3 is not considered the agent of the taxpayer for purposes of a tax-deferred exchange. The taxpayer’s transfer of relinquished property and subsequent receipt of like-kind property is treated as an exchange and the determination of whether or not the taxpayer is in actual or constructive receipt of money or other property before the taxpayer actually receives like-kind replacement property is made as if the QI is not the agent of the taxpayer.” [1]
Andy Gustafson
Aircraft 1031 Exchange: Fly-Away Exemption
In an aircraft 1031 exchange, an aircraft or engine held for productive use in a business or for investment sold and acquired for an aircraft or engine of equal or greater value effectively defers the capital gain and recaptured depreciation taxes triggered by the sale. The old aircraft can be sold first followed by the purchase of the replacement aircraft, or as is typically is the case in a reverse exchange, the replacement aircraft may be acquired first followed by the selling of the old or relinquished aircraft within 180 calendar days. General Asset Class 00.21 of Revenue Procedure 87-56 classifies “airplanes (airframes and engines), except those used in commercial or contract carrying of passengers or freight, and all helicopters (airframes and engines)” as like-kind.
1031 Exchange: Vacation Property Hold Time
As a general rule, when a taxpayer sells real property and realizes a gain on the property, the taxpayer is required to pay capital gains taxes on the gain realized. Although the rate at which capital gains are taxed fluctuates, it is typically enough to warrant looking for legal mechanisms to avoid the obligation. One mechanism used by many taxpayers is a Section 1031 Exchange. Named after the IRS section from which it stems, a Section 1031 contemplates an “exchange” of property instead of an outright sale. When a transaction qualifies for a Section 1031 Exchange, capital gains taxes on the realized gain are deferred. Can the sale of a vacation property qualify for Section 1031 treatment? If certain conditions are met, the answer is “yes.”
Non Resident Withholding Tax in a 1031 Exchange
A foreign person, including a nonresident alien individual, foreign entity or government, may be subject to a U.S. withholding tax of thirty percent on most types of U.S. sourced income. If a tax treaty exists between the U.S. and the foreign person’s country of residence, a reduced rate, including exemption, may apply. Generally, the tax is withheld from the payment made to the nonresident by a withholding agent. The withholding tax is required under sections 1441, 1442, and 1443 of the Internal Revenue Code.
1031 Exchange Properties Post
1031 exchange properties are made up of real and personal property held for productive use in a trade, business or investment. When sold, 1031 exchange properties trigger federal and potential state capital gains and recaptured depreciation taxes that can amount to 40 percent of the sales price. A 1031 exchange allows for the individual, corporation or partnership, either domestic or foreign to defer these taxes given a replacement 1031 exchange property is acquired within 180 calendar days post-closing on the old real or personal property of equal or greater value.
1031 Land: Like-Kind Requirement
Often the question is asked whether in a 1031 like-kind exchange must land be exchanged for land. The answer is found in the like-kind requirement under Internal Revenue Code (IRC) Section 1031. To qualify for consideration in a 1031 exchange, the relinquished or old property and the replacement property must be like-kind. Property is either real or personal property held for productive use in a trade, business or for investment.