What You Should Know About 1031 Exchanges

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This brief sixteen slide presentation covers what you should know about 1031 exchanges, what is and is not eligible, qualified use test, rules, strategies and the benefits.

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What You Should Know About 1031 Exchanges

  1. 1. Internal Revenue Code Section 1031 Fundamental and Advance Concepts Presented by: Andrew Gustafson, CES ® Atlas 1031 Exchange, LLC www.atlas1031.com 850-496-0090
  2. 2. Instructional Objectives <ul><li>What is a 1031 exchange? </li></ul><ul><li>How to qualify for a 1031 exchange. </li></ul><ul><li>What is and is not eligible for a 1031. </li></ul><ul><li>Qualified use test. </li></ul><ul><li>Benefits/Reasons to a 1031 exchange. </li></ul><ul><li>Forward and reverse strategies. </li></ul><ul><ul><li>Short Sales </li></ul></ul>
  3. 3. What is a 1031 Exchange? <ul><li>IRC § 1031(a)(1) </li></ul><ul><ul><li>No gain will be recognized on property held for productive use in business or investment when exchanged for like kind property held for productive use in business or investment. </li></ul></ul>
  4. 4. What is the outcome of 1031 Exchange? <ul><li>Defer </li></ul><ul><ul><li>Federal capital gains tax </li></ul></ul><ul><ul><li>State capital gains tax </li></ul></ul><ul><ul><li>Recaptured Depreciation </li></ul></ul><ul><li>Interest free loan </li></ul>
  5. 5. Reasons to Exchange <ul><li>Defer tax payment </li></ul><ul><li>Appreciation </li></ul><ul><li>Depreciation </li></ul><ul><li>Cash Flow </li></ul><ul><li>Consolidation </li></ul><ul><li>Diversification </li></ul><ul><li>Relocation of Investment </li></ul>
  6. 6. Real Property – partial list <ul><li>Rental properties </li></ul><ul><li>Land </li></ul><ul><li>Office buildings </li></ul><ul><li>Shopping Centers </li></ul><ul><li>Retail Stores </li></ul><ul><li>Golf Courses </li></ul><ul><li>Trailer Parks </li></ul><ul><li>Parking lots </li></ul><ul><li>Motels </li></ul><ul><li>Improvements to be constructed </li></ul><ul><li>Oil, gas and mineral rights </li></ul><ul><li>Water rights </li></ul><ul><li>Tenants in common </li></ul><ul><li>Timberland </li></ul><ul><li>Conservation easements </li></ul><ul><li>Apartments </li></ul>
  7. 7. Depreciable Tangible Personal Property <ul><li>Aircraft; </li></ul><ul><li>Barges, vessels, tugs; </li></ul><ul><li>Medical and dental equipment; </li></ul><ul><li>Artwork and collectibles; </li></ul><ul><li>Construction and farm equipment; </li></ul><ul><li>Light and Heavy general purpose trucks; </li></ul><ul><li>Furniture; </li></ul><ul><li>Taxis, cars; </li></ul><ul><li>13 General Asset Classes. </li></ul>
  8. 8. Intangible Nondepreciable Personal Property <ul><li>Mitigation credits used by developers </li></ul><ul><li>Airport take-off and landing rights or slots </li></ul><ul><li>FCC TV and Radio licenses or station swaps </li></ul><ul><li>Patents </li></ul><ul><li>Sport Contracts </li></ul><ul><li>Copyrights </li></ul><ul><li>Trade marks </li></ul><ul><li>Development rights </li></ul>
  9. 9. Property Excluded from 1031 <ul><li>Primary residence </li></ul><ul><li>Stock, bonds or notes </li></ul><ul><li>Partnership Interests </li></ul><ul><li>Indebtedness </li></ul><ul><li>Inventory </li></ul>
  10. 10. Exchange Requirements <ul><li>Value and equity of new property must be equal to or greater than the old property. </li></ul><ul><li>Debt on the new property must be equal to or greater than the old property. </li></ul><ul><li>Exchangor does not receive cash or reduction in debt otherwise a tax is triggered. </li></ul><ul><li>Cash offsets debt, but debt does not offset cash. </li></ul>
  11. 11. Qualified Use Test <ul><li>Intent </li></ul><ul><ul><li>must be for the production of income or investment </li></ul></ul><ul><li>Facts </li></ul><ul><ul><li>Holding period </li></ul></ul><ul><ul><li>Rented </li></ul></ul><ul><ul><li>Limited personal use </li></ul></ul><ul><ul><li>Schedule E </li></ul></ul>
  12. 12. Same Taxpayer Requirement <ul><li>Tax return that sells is the tax return that buys. </li></ul><ul><li>Name on the title of the old property is the name that is on the title to the new property. </li></ul>
  13. 13. 1031 Timelines <ul><li>45 calendar day identification post closing </li></ul><ul><ul><li>Three property rule </li></ul></ul><ul><ul><li>Two hundred percent rule </li></ul></ul><ul><ul><li>95% exception rule </li></ul></ul><ul><li>135 calendar day replacement period. </li></ul><ul><li>No extension unless Presidentially declared disaster. </li></ul>
  14. 14. Identification Requirements <ul><li>Address, city and state, % ownership, required, parcel id suggested. </li></ul><ul><li>In writing, signed by Exchangor, email not acceptable. </li></ul><ul><li>Must be received by 11:59 PM of the 45 th calendar day. </li></ul>
  15. 15. Types of Exchanges <ul><li>Simultaneous </li></ul><ul><li>Forward or Delayed </li></ul><ul><li>Reverse </li></ul><ul><li>Build to Suit </li></ul><ul><ul><li>Improvement </li></ul></ul><ul><li>Leasehold Improvement </li></ul>
  16. 16. Wrap Up <ul><li>Benefits </li></ul><ul><li>Questions </li></ul>

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