A 1031 exchange allows a federal taxpayer, either domestic or foreign, to defer capital gains and recaptured depreciation taxes when selling property held for productive use in a trade, business or investment, given like-kind replacement property is acquired within 180 calendar days from the sale of the old property. The types of property that can be exchanged include real, tangible and intangible personal property. Current market trends depend upon the type of Qualified Intermediary — institutional or non-institutional — and whether the exchange is oriented toward mass like-kind exchange programs or niche market such as artwork, livestock or vintage cars.
1031 exchange
1031 Exchange Properties for Sale
Looking for 1031 exchange properties for sale? Do you have a property you would like to sell? Smart property owners should routinely evaluate whether to sell and replace their properties to benefit from greater cash flow, appreciation, depreciation and diversification. Internal Revenue Code Section 1031 allows the property owner to defer the capital gain and recaptured depreciation taxes given replacement property of equal or greater value is acquired within 180 calendar days. The 1031 exchange provides a tax deferral that is an indefinite, interest free loan available to any property owner. The property must be held for productive use in a trade, business or for investment.
1031 Exchange Safe Harbor: Qualified Escrow and Qualified Intermediary
In 1991, the Department of Treasury published regulations creating four safe harbors defining conditions and constraints to determine whether the taxpayer is in actual or constructive receipt of money or other property for the intent of Internal Revenue Code (IRC) § 1031. IRC Section 1031 states “no gain or loss is recognized when property held for productive use in a trade, business or investment is exchanged for property held for productive use in a trade, business or investment.” The outcome of the code allows taxpayers to defer the capital gain and recaptured depreciation taxes for real and personal property held for use in a business or investment.
Constructive Receipt
The purpose of the safe harbors is to prevent the taxpayer from the receipt or control over transactional proceeds. For example, in a property closing, a settlement agent may mistakenly complete a 1031 exchange without a Qualified Intermediary (QI) by transferring the proceeds from one escrow to another, believing that is acceptable when in fact, the taxpayer as principal is deemed to have received the transactional proceeds given the settlement agent is the taxpayer’s agent, violating the g(6) constructive receipt limitations and invalidating the exchange. Equally important , there must be a series of agreements supporting the taxpayer’s intent to initiate a 1031 exchange in accordance with IRC regulations, linking the interdependent transactions of the property disposition and acquisition.
Safe Harbors
Given the exchanging taxpayer cannot have access to the proceeds between the time the relinquished and replacement property are sold and acquired, the regulations provide protection for the taxpayer, preventing possession of the cash. Known as Safe Harbors, the most common are a QI and Qualified Escrow Holder. The independent, arms-length QI is unrelated, a non-employee and under Safe Harbor No. 3, not considered an agent of the taxpayer for purposes of the 1031 exchange.
Taxpayer assignments enable the QI to sell and acquire the old and new property with notice of assignments and an exchange agreement drafted to support the 1031 requirements. The QI will also typically hold the exchange proceeds preventing taxpayer access until the funds are needed for the replacement property. The funds are often held in qualified escrow accounts requiring dual signatures or accounts requiring personal identification numbers for disbursement.
Care should be exercised when selecting a QI, given the industry is not regulated though the Bureau of Consumer Financial Protection is tasked with developing regulations.
1031 Exchange Services
1031 services represent the accommodation of 1031 tax deferred exchanges. The Internal Revenue Code (IRC) Section 1031 states “no gain or loss is recognized when property held for productive use in a trade, business or investment is exchanged for property held for productive use in a trade, business or investment.” The 1031 exchange defers the recognized gain or capital gains tax due until the sale of the replacement property. Another 1031 exchange can be initiated as often as needed.
Barton Ridge 1031 Exchange Eligible Investment Property
Barton Ridge, a 1031 exchange eligible investment property represents 5,000 acres of the most wonderful hunting, fishing and overall outdoor experience in the Southeast. A diverse wildlife habitat, Barton Ridge has developed into one of the premier trophy animal areas in the entire Southeast. Whether you enjoy a hunt with flushing dogs in the more traditional manner or utilizing the European driven style, the crackling of the birds followed by the bursting of wings is a wonderful moment. Barton Ridge’s many streams offer a unique opportunity for fly fisherman along with a catfish pond and trophy bass on a trophy managed pond sets.
1031 Exchange Explained
A 1031 exchange can be explained in three ways. It is when a real or personal property held as an investment or for use in a business is sold and replaced with like-kind real or personal property held as an investment or for use in a business. It is an interest free loan or tax deferral. It is a section of the Internal Revenue Code Section 1.1031.