1031 eligible multi-family properties are available in Warrensburg, Missouri, located 64 miles from Kansas City and 218 miles from St. Louis. Whiteman Air Force Base and University of Central Missouri are the leading employers.
Exchange Blog
Selling Farmland Tax Consequences
When selling land, whether farmland, timberland or raw land, federal and state taxes are triggered and due in the year following the sale. The sale proceeds are reported on the taxpayer’s federal and state tax return. If the property sold for a value greater than the purchase price, then a capital gains tax is due. The capital gains tax is currently 15 percent given the property has been owned for at least a year and a day and the taxpayer is in the 25 percent tax bracket and above. If owned for a shorter period, then the short term rate or the ordinary income tax, is imposed. Recaptured depreciation is not due given land cannot be depreciated.
Forward 1031 Exchange
The forward 1031 exchange is one of many types of 1031 tax deferred exchanges. Also known as a delayed exchange, in a forward 1031 exchange, the relinquished or old property is sold by assigning the rights of the Purchase and Sale Agreement (PSA) to the qualified intermediary who instructs the title company to direct deed the property to the buyer. A Notice of Assignment is signed by the buyer. An Exchange Agreement is then signed by the Exchangor. The net equity is then wired to either the replacement property closing, if scheduled to closed within a couple of days, or to an escrow account established under the Exchangor’s tax identification number. The funds are held in the escrow account until needed for the replacement property closing to occur within 180 calendar days of the relinquished property closing.
Identification Phase
In a forward 1031 exchange, replacement property is to be formally identified to the qualified intermediary by the 45th calendar day post-closing listing the addresses of up to three properties regardless of value, or four or more given the total value does not exceed two hundred percent of the relinquished property sales price. An identification form is provided by the qualified intermediary along with a letter identifying the 45th and 180th calendar day of the forward 1031 exchange.
Should no properties be identified, the forward 1031 exchange ends at 12:00 AM on the 45th calendar day post relinquished property closing. Exchange funds held in the Exchangor’s escrow account are wired the following business day, ending the exchange. If the net equity and debt retired at the relinquished property closing is not replaced with replacement of equal or greater value, then federal and state capital gains and recaptured depreciation taxes are due when the Exchangor files their federal tax return.
Replacement Phase
The replacement property can be acquired at any time in the forward 1031 exchange. In a simultaneous 1031 exchange, the old and new property can be closed on in the same closing or same day. If the replacement property is to be acquired within days of the relinquished property closing, it is suggested to separate the closings by a couple of days to allow for the exchange fund wire to clear the banks. Otherwise, the closing staff is anxiously waiting for the exchange funds to be received.
The rights of the replacement property PSA, but not the obligations, are assigned to the qualified intermediary who instructs the title company to direct deed the replacement property from the seller to the Exchangor. A Notice of Assignment is signed by the seller.
The Assignment of rights to the PSA effectively enables the qualified intermediary to become the seller of the relinquished property and to receive the exchange funds from the sale for use to acquire the replacement property as the buyer. A 1031 exchange is a series of interdependent steps requiring strict adherence to the requirements set forth in Internal Revenue Code Section 1031.
Deferred Improvement Exchange
Another form of the forward 1031 exchange is when a Deferred Improvement Exchange, improvements are to be made on the replacement property using the exchange proceeds. The steps are similar to a forward 1031 exchange, except an Exchange Accommodator Titleholder, (EAT) acquires the replacement property on behalf of the Exchangor and holds title. The Exchangor oversees the construction, approving vendor invoices that are paid by the qualified intermediary. It is critical to include a description of the improvements on the identification letter. The 45th and 180th calendar day timeframe requirements still apply. No later than the 185th calendar day post relinquished property closing, the EAT conveys title to the Exchangor. For states that impose transfer taxes, attention should be given towards understanding whether a transfer tax is due at time of recording.
If you have questions regarding forward, simultaneous or deferred improvement exchanges, click on the button below and receive a response within twelve hours or less from a Certified Exchange Specialist©.
Florida Reverse 1031 Exchange Transfer Tax
Taxpayers looking to limit the amount of tax paid on the sale of property often choose to enter into a Section 1031 Exchange instead of a traditional sale. If a transaction qualifies for Section 1031 Exchange treatment, then capital gains taxes are deferred. In a Reverse 1031 Exchange, the replacement property is acquired first and then the property to be exchanged is relinquished. As part of the 1031 Exchange process, an Exchange Accommodator Titleholder, or EAT, takes title to either the relinquished or the replacement property during the course of the transaction because the Exchangor cannot hold the title to both the relinquished and replacement property at the same time. Often referred to as “parking the title,” this practice can have unintended tax consequences if a taxpayer is not careful. Specific to each state is the potential of a transfer tax when the parked property is conveyed to the EAT.
Selling Farmland for Vacation Property Short Sale
In this 1031 exchange, capital gains taxes were deferred when Indiana farmland was sold and replaced with a Florida vacation property short sale. The exchange started with the client finding Atlas 1031 following a Google lookup using keywords 1031 exchange and the client’s home town. “The Atlas 1031 web site came to the top of the search list. The detailed site provided the information and confidence to proceed with making contact.”
Reverse 1031 Exchange
A reverse 1031 exchange is a tax deferral strategy created in Section 1031 of the Internal Revenue Code providing a mechanism for taxpayers to enter into an exchange of property in lieu of a traditional sale. A Section 1031 exchange is an attractive option for taxpayers because when a transaction qualifies for Section 1031 treatment any capital gains taxes that would otherwise be due are deferred. Over the last century, the Section 1031 rules and regulations have evolved to meet the increasingly complex demands of taxpayer transactions. A number of safe harbor provisions have been built in to Section 1031 exchanges in order to facilitate the transactions. For example, Revenue Procedure 2000-37 provides a safe harbor provision for parking a title during a reverse 1031 exchange.