Identification Requirement

1031 Exchange Mistakes

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1031 exchange mistakes to avoid will help novice and experienced 1031 Exchangors gain insight how to be better informed and take ownership of their 1031 exchange. With ownership, Exchangors ask better questions.  The outcome of better questions is fewer if any surprises.

When Is It Too Late?

Is it too late to initiate a 1031 exchange? If you have closed and received the net proceeds of the sale, it is too late. Once you receive the proceeds it is nearly impossible to unwind the closing. When considering selling an investment property like a farm, ranch, rental property or collectible, one of the first steps is to talk with your accountant to determine whether a 1031 exchange makes sense.

After The 45th Day Can The ID Letter Be Changed?

Can the identification letter be changed after the 45th calendar day? No.

Confirm receipt of the identification letter with your qualified intermediary. The best way to avoid missing the identification deadline is to complete the task by the 44thcalendar day and follow up with the accommodator confirming receipt. Otherwise be sure to send the identification letter by fax to your qualified intermediary no later than 11:59 PM of the 45th calendar day post closing.

Postponing the 45th and 180th Calendar Days

Can the 45th and 180th calendar days be postponed? Yes. Under the following conditions, the identification and replacement periods can be extended.

  • Presidentially declared disasters;
  • Terroristic actions;
  • Military actions or Exchangors serving in combat zones.

Requesting Exchange Funds

You want your exchange proceeds when? The best time to request receipt of exchange proceeds is:

  • At the relinquished or old property closing, take a partial disbursement.
  • If no replacement properties are identified by the 45th calendar day, the exchange is over and exchange proceeds are wired to your bank account.
  • Exchange proceeds are held until the 180th calendar day unless used to acquire replacement property, then wired to your bank account.

Once into a 1031 exchange, the exchange proceeds cannot be received by the exchangor unless at one of the three exceptions described above. Otherwise, the accommodator could be considered an “accommodating accommodator” and taint their third party, independent status.

When considering selling real or personal property call us to discuss a 1031 exchange.

We Can Help 

Atlas 1031 Exchange has been accommodating tax-deferred exchanges of all kinds for more than 17 years. We are fluent in the rules and regulations of IRC Section 1031 and able to help you navigate your exchange.

Contact us today to discuss any questions you may have. Call our office at 1-800-227-1031, email us at info@atlas1031.com, or submit your question through the online form at the top of this page.

Business for Sale – Multi Asset 1031 Exchange

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Multi asset 1031 exchanges apply to sales of apartments, motels, dry cleaners, laundromats, gas stations and variety of franchises including self storage facilities, convenience stores, fast food, automotive and technology service providers. Each has in common real and personal property that can be sold and capital gain and recaptured depreciation taxes deferred when real and personal property are replaced in an Internal Revenue Service (IRS) 1031 tax deferred exchange.

Fast Food Franchise

For example, a Chicken Express franchisee may wish to relocate to a better location or different city. When the sales contract is drafted, it is advisable to assign values to the real and personal property. This allows for an allocation of gain to underlying assets. Real property is matched to real property, while personal property is grouped together. Goodwill or going concern value is excluded. Following the closing, identification of the replacement property must be received preferrably by the Qualified Intermediary.

Incidental Rule

The 1031 identification rule requires that real and personal property are identified by the 45th calendar day post closing of the first property in the exchange. Personal property considered incidental to the larger property is not treated separate given the value does not exceed 15% of the aggregate fair market value of the larger property.

  • For example, a self storage facility may have a fence, gate and personal property perhaps associated with the tenant managing the property. Given the value of the personal property sold does not exceed 15% of the gross sales price, the personal property does not need to be itemized on the identification form.
  • If the value does exceed 15%, then the personal property is grouped into one of thirteen like-kind General Asset Classes or North American Industry Classification System (NAICS) and listed as a group of potential replacement property. If three or more properties are to be identified, it is suggested to use the 200% rule when identifying versus the three property rule.

Identification

Utilizing the two hundred percent rule allows four or more properties to be identified. Property identified should not exceed 200% of the relinquished property value otherwise, 95% of what has been identified must be acquired.

In the case of the fast food franchise, the identification may include up to three locations and a fourth identification of personal property group if the value exceeds 15% of the gross sales price.

1031 Benefits

The benefits of an IRS 1031 tax deferred exchange are:

  • indefinite interest free loan of taxable dollars
  • relocation
  • consolidation
  • depreciation
  • diversification
  • replacement of under performing asset.

1031 exchanges provide business owners with the capability to make changes to their overall business structure without the cash outlays for capital gains and recaptured depreciation taxes. The tax obligation is not eliminated, only deferred until the sale of the replacement property.

Conclusion

When exchanging a multi asset property such as a franchise, the personal property does not need to be identified given the 15% incidental rule.

Considering selling your franchise or a business and need to make improvements to the replacement property? An improvement or build to suit exchange is used to make improvements to the parcel.

1031 Exchange: Condominium for Condominium

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Bob was referred to Atlas 1031 by George Brannon Jr., CEO of SETCO Services, LLC, a title and escrow services provider with offices in Destin, Panama City Beach, Seacrest and Perdido Key, Fl. In Bob’s initial call, he explained his intent to sell a condominium held for investment and to initiate a 1031 exchange for real property located closer to his family’s home in Roswell, Ga.

Forward Exchange

There are different types of exchanges with the forward exchange being the most common. Reverse exchanges allow for the new property to be acquired before the sale of the old property.

The forward exchange was an appropriate strategy for Bob. The sale of his Destin, Fl. investment property was closed first, followed by the closing on the Roswell, Ga. property. There was no need to identify property formally given his actions completed the exchange prior to the forty-fifth calendar day milestone.

Testimonial

“The service was great. Andy made it very easy to understand and was always accessible to phone calls and responsive to our emails. We will use Atlas’ services again in the future.”

Bob and Marie Perrotta
Rosewell, Georgia

 

1031 Exchange Like-Kind Identification

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1031 Exchange Identification RequirementsIn a 1031 Exchange, when replacement property is to be acquired after the 45th calendar day post relinquished property closing, the replacement property must be formally identified. Failure to follow the strict rules could be grounds for the Internal Revenue Service to disqualifying the 1031 Exchange. Taxpayers initiating a 1031 Exchange for personal or real property held for productive use in a trade, business or for investment should acquaint themselves with identification requirements to avoid misinterpretation and the angst of learning afterwards the lessons of botched like-kind identification.

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1031 Exchange Timeline

Posted on | by Andy Gustafson | Leave a Comment on 1031 Exchange Timeline

A 1031 exchange is a wealth building strategy known as Internal Revenue Code Section 1.1031. It is used by corporations, individuals, trusts and partnerships both domestic and foreign, for the exchange of real and personal property held in the productive use of a business or for investment. With each 1031 exchange is a timeline requiring strict adherence.

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1031 Exchange Identification Rules

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1031 Exchange Identification RulesPursuant to Section 1031(a)(3) of the Internal Revenue Code, replacement property received in a 1031 exchange is not considered like-kind to the relinquished property if the replacement property is not identified within the replacement property identification period of forty-five days post closing on the relinquished or old property. 1031 exchange identification rules are polar, implying there can be no post dating of the identification. Both the 45th and 180th day milestones can be extended given written authorization from the Internal Revenue Service due to Presidentially declared disasters such as hurricanes, tornadoes, floods and fire or military service in a combat zone.

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