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Student workbook for Edmund & Wheeler's Accounting CPE Course, The Power of Section1031 for Accounting Professionals.

Student workbook for Edmund & Wheeler's Accounting CPE Course, The Power of Section1031 for Accounting Professionals.

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Nh Accounting Workbook 8.4.09 Document Transcript

  • 1. Flawless Section 1031 Exchanges for Over 27 Years        Section 1031     For   Accounting   Professionals   Edmund & Wheeler, Inc. QI It is estimated that 20-25% of the nearly 567 Cottage Street $200B in annual real estate transactions Littleton, NH 0561 could benefit from a Section 1031 Exchange, and that only 3% take 603-444-0020 advantage of this powerful tool. Edmund & Wheeler, as a Qualified www.section1031.com Intermediary (QI), has been facilitating exchange@section1031.com Section 1031 Exchanges for over 27 years. We have developed “The Power of Section 1031” to provide a solid understanding of Section 1031 basics and the strategic ways in which Section 1031 can be utilized and to assist accounting professionals in recognizing opportunities for their clients.   © 2008 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice.
  • 2. Welcome To Section 1031 for Accounting Professionals. This workbook has been designed to assist you during the course, and to provide a reference tool for you in the future. The session is broken down into three sections as described below. Web references have been made throughout the document so that you can do further topical research as required. Web references are indicated with a grey arrow. www.section1031.com If you have additional questions or concerns after you complete this course, Edmund & Wheeler is always available by email at exchange@section1031.com, by phone at 603-444-0020, or on the Web at www.section1031.com. Our practice provides accounting professionals with Section 1031 consulting at no charge! Section 1 provides you with an outline of this course, an introduction  Section to the Section 1031 Exchange and the essential elements required for  1&1a successful exchanges. Section 1a provides specific information  required for accounting professionals.  Introduction &   1031 Basics This section lasts approximately 2 hours and begins on Page 3.  Section 2 contains case studies of the various types of Exchanges as  Section well as real‐life examples of actual transactions that will assist you in  developing your own Section 1031 strategies.  2   Case Studies & Real-life Examples This section lasts approximately 1 hour and begins on Page 35.  Section 3 outlines the viable alternatives for Exchanges that can be  Section used for diversification, relocation or the desire of a client wishing to  3 exit from the real estate investment class.   Alternate Exchange   Opportunities This section lasts approximately 1 hour and begins on Page 55.  1 Page Course Summary – “Must Have Section 1031 Concepts”  Summary Commonly used phrases and Section 1031 definitions.  45/180 Calculation Charts  Section 1031   Glossary This section begins on Page 72.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 2
  • 3. Section 1 Introduction & 1031 Basics Contents Introduction ...................................................................................................................................................5 About Edmund & Wheeler, Inc......................................................................................................................6 Primary Objectives of This Course ...............................................................................................................7 What Is A Section 1031 Exchange ...............................................................................................................8 The Five Critical Elements of an Exchange ..................................................................................................8 The Regulation .............................................................................................................................................8 An Exchange at a glance ..............................................................................................................................9 Section 1031 (a)(1) IRS Code.......................................................................................................................9 Exceptions to Section 1031 ..........................................................................................................................13 Investment Purpose and the Benefits of an Exchange .................................................................................14 The Essential Elements ................................................................................................................................14 Replacement Property Rules ........................................................................................................................15 Real Property (What is Like Kind?) ...............................................................................................................16 Examples of Like-kind ...................................................................................................................................17 Personal Property .........................................................................................................................................18 Timing Is Everything .....................................................................................................................................18 Can Anyone Handle an Exchange? ..............................................................................................................19 Who Qualifies for an Exchange? ..................................................................................................................19 The Qualification Tool ...................................................................................................................................20 The Five Most Common Section 1031 Misconceptions ................................................................................22   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 3
  • 4. Section 1a Section 1031 & Accounting Contents How the Different States Approach Section 1031 .........................................................................................24 Reporting an Exchange to the IRS ...............................................................................................................25 Form 8824 ....................................................................................................................................................26 Completing Form 8824 (Part I) .....................................................................................................................28 Completing Form 8824 (Part II) ....................................................................................................................29 Completing Form 8824 (Part III) ...................................................................................................................30 What is Boot? ...............................................................................................................................................31 What is New Money? ....................................................................................................................................31 Exchanges That Cross Two Tax Years ........................................................................................................31 Can a Failed Exchange Be Fixed? ...............................................................................................................32 Section 1031 and Partnerships .....................................................................................................................33 Section 1031 or Section 1033? .....................................................................................................................34   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 4
  • 5. Too many professionals get caught up in the belief that  Section 1031 is only about deferring capital gains. While it  is one of the remaining tax deferral tools available, it’s  actually a LOT about leverage. Clients using what they  would have paid immediately in capital gains taxes to  improve the quality and value of their holdings and plan  for their financial future, is REALLY what Section 1031 is  all about.  Section 1031 has been a part of the Internal  Revenue Service Code since 1921!  Look at it as a gift from Uncle Sam, but don’t tell anyone.  Ok, let’s do the math. These numbers suggest that  investors paid the Government over $5B in capital gains  taxes when in fact, they could have used this money in  their own portfolios, interest free, for as long as they  would like. Wait a minute…  Why is this so? We have found that many professionals  that we deal with on a day‐to‐day basis are unclear of the  many strategic uses of Section 1031. Unfortunately, there  are still many that don’t even know of its existence, and  fail to recognize even its most basic uses.  Don’t let your clients find out you didn’t tell them they  could have used this powerful tool.  As accounting professionals, you have a certain  responsibility to your clients regarding the tax  ramifications of their transactions.  Holders of investment  real estate should be made aware of the tools that are  available to help them strengthen their real estate  portfolios. Section 1031 is one of the more powerful tools.  We hear over and over again from accounting  professionals how thankful their clients were that they  understood Section 1031 and helped them to explore the  possibilities. Indeed, many of our accounting partners  have saved their clients hundreds of thousands of dollars  in capital gain expense, giving them more money to    invest.   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 5
  • 6. In 1981, Mr. George Foss, III, our founder and co‐principal was a prominent real estate  broker in Northern New Hampshire. After reading about the concept of a Section 1031  Exchange, he was immediately intrigued, and saw the opportunity to add an interesting twist  to his real estate deals by helping clients to take advantage of this virtually unknown gift  from Uncle Sam.  27 years and thousands of successful exchanges later, George Edmund & Wheeler remains  the foremost authorities on Section 1031 in the New England states, and have completed  exchanges with clients in 48 of 50 states.  The firm has provided Section 1031 education and consulting to hundreds of New England  real estate professionals and has helped them to save their clients over $100 Million in  capital gains taxes.                  George Foss, QI                               John Hamrick, Instructor    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 6
  • 7. Today will begin by providing you with some of  the very important basic aspects of Section  1031. We find that may investors absolutely  qualify for 1031 treatment, but their advisors  are sometimes lacking in this basic  understanding.    We will then be exploring Section 1031 from  and accountants viewpoint, going through some  real live examples and relating some  information on alternative exchange strategies.          This course has been designed to assist you in  becoming proficient in the basics of a Section  1031 Exchange.   An Exchange can be a very complex and time‐ consuming endeavor. As QI’s, we understand all  of the mechanics and the myriad of rules and  regulations surrounding an Exchange. Our goal  for this session is to provide you the knowledge  and tools required to assist your clients in  recognizing the tremendous opportunities  provided by Section 1031.      Section 1031 is not just a tax deferral vehicle. It  is a powerful part of your client’s overall  investment strategy, their exit strategy from a  business, and an integral part of their estate  planning.  Bottom line is that the taxes that are deferred  can be used to leverage larger investments,  diversify portfolios and substantially increase  wealth.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 7
  • 8. Section 1031 is fundamentally about the relocation and  reallocation of your client’s real estate assets, all without  paying capital gains taxes. Relocation could be across the  street, or across the nation. Clients can relocate their  holdings to several markets, creating geographical  diversity. They can also reallocate holdings by combining  multiple holdings into one more valuable property. They  can sell apartment buildings and Exchange for single‐ family housing units, or they can opt for one of the  passive real estate investments available and leave the  day‐to‐day management of real estate to a professional  property management team.      Section 1031 exchanges are reported on Form  8824,  attached to the Form 1040 Tax Return.  It is important  that all of the documentation leading up to and used  during the exchange explicitly states that an exchange is  taking place and not an ordinary sale.  The taxpayer  cannot touch the funds or it will trigger the tax.  The  Relinquished Property and the Replacement property  must be investment/business use property in the  taxpayer’s hands.  All exchanges must be concluded  within 180 days, as may be reduced by the initial due date  of the Federal Tax Return.          An exchange is handled in the same manner as a regular  sale with the exception that a third party, the Qualified  Intermediary (QI), provides documentation, acts as  Escrow Agent, and handles all funds.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 8
  • 9. www.section1031.com/PDFs/New PDFs/IRC1031.pdf   Section 1031 (a) Nonrecognition of gain or loss from exchanges solely in kind (1) In general No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment. (2) Exception This subsection shall not apply to any exchange of— (A) stock in trade or other property held primarily for sale, (B) stocks, bonds, or notes, (C) other securities or evidences of indebtedness or interest, (D) interests in a partnership, (E) certificates of trust or beneficial interests, or (F) choses in action. For purposes of this section, an interest in a partnership which has in effect a valid election under section   761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership. © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 9
  • 10. (3) Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged property For purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if— (A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (B) such property is received after the earlier of— (i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (ii) the due date (determined with regard to extension) for the transferor’s return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs. (b) Gain from exchanges not solely in kind If an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property. (c) Loss from exchanges not solely in kind If an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized. (d) Basis If property was acquired on an exchange described in this section, section 1035 (a), section 1036(a), or section 1037 (a), then the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange. If the property so acquired consisted in part of the type of property permitted by this section, section 1035 (a), section 1036(a), or section 1037 (a), to be received without the recognition of gain or loss, and in part of other property, the basis provided in this subsection shall be allocated between the properties (other than money) received, and for the purpose of the allocation there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange. For purposes of this section, section 1035 (a), and section 1036 (a), where as part of the consideration to the taxpayer another party to the exchange assumed (as determined under section 357 (d)) a liability of the taxpayer, such assumption shall be considered as money received by the taxpayer on the exchange. (e) Exchanges of livestock of different sexes For purposes of this section, livestock of different sexes are not property of a like kind.     © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 10
  • 11. (f) Special rules for exchanges between related persons (1) In general If— (A) a taxpayer exchanges property with a related person, (B) there is non-recognition of gain or loss to the taxpayer under this section with respect to the exchange of such property (determined without regard to this subsection), and (C) before the date 2 years after the date of the last transfer which was part of such exchange— (i) the related person disposes of such property, or (ii) the taxpayer disposes of the property received in the exchange from the related person which was of like kind to the property transferred by the taxpayer, there shall be no non-recognition of gain or loss under this section to the taxpayer with respect to such exchange; except that any gain or loss recognized by the taxpayer by reason of this subsection shall be taken into account as of the date on which the disposition referred to in subparagraph (C) occurs. (2) Certain dispositions not taken into account For purposes of paragraph (1)(C), there shall not be taken into account any disposition— (A) after the earlier of the death of the taxpayer or the death of the related person, (B) in a compulsory or involuntary conversion (within the meaning of section 1033) if the exchange occurred before the threat or imminence of such conversion, or (C) with respect to which it is established to the satisfaction of the Secretary that neither the exchange nor such disposition had as one of its principal purposes the avoidance of Federal income tax. (3) Related person For purposes of this subsection, the term “related person” means any person bearing a relationship to the taxpayer described in section 267 (b) or 707 (b)(1). (4) Treatment of certain transactions This section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection. (g) Special rule where substantial diminution of risk (1) In general If paragraph (2) applies to any property for any period, the running of the period set forth in subsection (f)(1)(C) with respect to such property shall be suspended during such period. (2) Property to which subsection applies This paragraph shall apply to any property for any period during which the holder’s risk of loss with respect to the   property is substantially diminished by— © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 11
  • 12. (A) the holding of a put with respect to such property, (B) the holding by another person of a right to acquire such property, or (C) a short sale or any other transaction. (h) Special rules for foreign real and personal property For purposes of this section— (1) Real property Real property located in the United States and real property located outside the United States are not property of a like kind. (2) Personal property (A) In general Personal property used predominantly within the United States and personal property used predominantly outside the United States are not property of a like kind. (B) Predominant use Except as provided in subparagraphs (C) and (D), the predominant use of any property shall be determined based on— (i) in the case of the property relinquished in the exchange, the 2-year period ending on the date of such relinquishment, and (ii) in the case of the property acquired in the exchange, the 2-year period beginning on the date of such acquisition. (C) Property held for less than 2 years Except in the case of an exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection— (i) only the periods the property was held by the person relinquishing the property (or any related person) shall be taken into account under subparagraph (B)(i), and (ii) only the periods the property was held by the person acquiring the property (or any related person) shall be taken into account under subparagraph (B)(ii). (D) Special rule for certain property Property described in any subparagraph of section 168 (g)(4) shall be treated as used predominantly in the United States.       © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 12
  • 13. As can be seen from the Section 1031 statute language, at #2: 2) Exception This subsection shall not apply to any exchange of— (A) stock in trade or other property held primarily for sale, (B) stocks, bonds, or notes, (C) other securities or evidences of indebtedness or interest, (D) interests in a partnership, (E) certificates of trust or beneficial interests, or (F) choses in action. So these things cannot be exchanged under Section 1031.  This was not always the case.  The original statute was passed on March 8, 1921, and was silent on the items named  above, especially (B) stocks, bonds, or notes.  It didn’t take Roaring 20’s Investors long to  figure out that they could sell shares with losses and exchange shares with gains.  Two  years later, in 1923, the party was over, and all of the exceptions except (D) were added;  (D) came along in 1984.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 13
  • 14. It’s important to understand the difference  between investment property and property  “held for sale.”  Property that is held for sale is  technically inventory in the hands of the  taxpayer and is therefore not eligible for Section  1031 treatment.                Section 1031 Exchanges can be used as a  strategy to achieve tax deferral while changing  the location and the type of property held.  As a  tax‐planning tool, it will achieve greater net  equity over time and increased cash flow.  Section 1031 can also unravel partnership issues  and allow investors to exchange from active to  passive real estate holdings.          The Exchange Agreement created by the  Qualified Intermediary gives the QI legal  standing by way of an assignment of the  Contract Rights in both the old property and the  new property.  From the Exchangor’s  perspective, a sale does not occur, but rather an  exchange of properties.  Both must be used by  the taxpayer for investment or productive use.   The “Like‐Kind” Test must be satisfied.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 14
  • 15. There are three separate rules for identifying Replacement property.  The most common  rule is termed the “3 Property Rule.”  It doesn’t matter how many properties were sold  in an exchange, it is a cap on the number of choices of limitless value.  Identifying three  properties within the 45‐day deadline will be challenging.  Three, two, or even one  property can be selected, but it’s a good policy to identify more than one so a backup  property is available.  More than one can be purchased.   The 200% Rule is available to taxpayers who want to identify and/or acquire more than  three properties.  The limitation in using the 200% Rule is that the total value of what is  identified cannot exceed twice the value (or 200%) of the Relinquished Property.  This  rule works well for larger dollar transactions when the taxpayer wants to diversify the  investment into multiple properties.  The 95% Rule is the most perilous choice.  It will allow the taxpayer to ignore the value  and the number of choices with the requirement that once the properties are identified,  the taxpayer MUST acquire 95% of them (by value).   In nearly 30 years of practice this  rule has been used by a client in only one instance.  NOTE:  Now is your only opportunity to add an Alternative Investment such as a Tenant‐ in‐Common (TIC) property; an UP‐REIT; or an Oil & Gas Lease to one of these lists.  Only  Structured Sales, which convert all or what’s left of a Section 1031 Exchange to a Section  453 Installment Sale, can be elected later, after the 45th day.   More on this later…….                    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 15
  • 16. The point to remember is that it does not matter the type of real estate that the taxpayer owns, it is how the property is used  in their hands.  It must be for investment, commercial or business use.  A single‐family residence is like kind to every other kind  of real property as long as the single‐family residence is NOT Personal Use or Dealer Property.    These are ALL Like Kind!      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 16
  • 17. Question:     “Can you do a 1031 exchange when selling and assigning the rights under a long  term cell tower lease valued based upon anticipated income from rent?”  Answer:      A cell tower lease is typically on a patch of land on which the tower is erected, and a  right‐of‐way access to the site.  The Landlord owns the land & easement which is leased,  and the tenant owns, and must later remove the improvements.  The lease would  describe all of this, and state an initial term plus a number of options to renew.    If you can add the number of years remaining in the initial term and in all of the options  to renew together and get a result that equals or exceeds 30 years, then the leasehold is  exchangeable for another leasehold of 30 years or more, or for a fee interest in real  estate.  Said another way, the lease must have 30 or more years left to run counting all  options to renew to be exchangeable for a fee.  The underlying properties must be of  Like‐Kind.  IRS Regs 1.1031(a)‐1(c).       The income from the lease has no bearing on the exchangeability of the asset; it's  only that the lease pertains to real property and that it has a remaining term that  qualifies, as above.  However, the income does play a part in the valuation of the lease, as  to be completely tax‐deferred; the Replacement Property must be valued equal to or  greater than the Relinquished Property.  So, the payments to be made under the lease in  the future have to be given a Present Value.       © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 17
  • 18. When Section 1031 was first codified in 1921, it was for the benefit of farmers who  objected to paying a two (2%) percent capital gains tax on their farm property, both real  and personal.   Certain items of personal property are exchangeable as long as they fall  into the same asset class or product code.   All aircraft is like‐kind to all other aircraft for  instance, but is not like kind to other items of machinery.  The North American Industry Classification System for Sectors 31‐33 is the best sources for  determining like kind for personal property.    www.census.gov/naics (for a complete description of the allowable categories) The Exchange will begin on the day the deed is  conveyed to the purchaser.  The 45 day and 180 day  clocks will begin the following day.  Contracts for sale  and purchase do not trigger the beginning on an  exchange, it always happens on the day of the first  leg of the transaction.  This is also true for reverse  exchanges.   Only Presidentially declared disasters would provide  for extension of these time sensitive dates.        © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 18
  • 19. A “Qualified Intermediary” is one who is not  “Disqualified.”  The Regulations are specific in stating  that one who has served the Taxpayer in almost any  capacity in the past 2 years is disqualified to be the Q.I.  Trusted friends and non‐relatives (cousins, in‐laws, etc.)  can technically serve, but one wants a Qualified  Intermediary with a thorough knowledge of the Code  and the Regulations.  The Exchange Agreement must have this statutory  language included that prohibits the taxpayer from any  type of use of the funds prior to the end of the  Exchange period.      The first step is to engage the Qualified Intermediary to  create a written Exchange Agreement.   The QI is  required to have standing in the exchange and this will  be accomplished with an assignment of the contracts.   Specific guidance will be provided to the Settlement  Agent and the funds will be directed to the QI for the  acquisition of the new property.   Most importantly, the  QI will provide guidance to the taxpayer to avoid the  pitfalls.  Transactions with related parties are  prohibited unless other rules are followed.            Exchanges can be conducted regardless of whether the  taxpayer is an individual or some form of other entity.   It is important to remember that the same taxpayer  must sell and then buy.  The IRS is tracking the taxpayer  identification number (EIN).  Single member LLC’s and  revocable trusts (disregarded for tax purposes) may  also exchange property.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 19
  • 20. DOES YOUR SITUATION QUALIFY FOR A SECTION 1031 EXCHANGE This tool has been developed to help you quickly identify Section 1031 opportunities? www.section1031.com/PDFs/New PDFs/WhatQualifies.htm   Plans for the Money  The greatest benefit from capital gains  deferral will be obtained by reinvesting the  entire price (less costs) from the sale of  investment  property. It is possible to extract  cash at closing; however, the amount you take  will be subject to tax.  Amount Invested  How was the property acquired and how long  has it been owned?  Was it purchased, was it  exchange into it, was it given or inherited by  the taxpayer?    The answers to these and other questions will  determine whether the cost basis, and what  the exposure is to Capital Gains Tax.  If the  gain exceeds $20,000 then an Exchange should  be considered (Rule of thumb).      Mortgage Balance  The outstanding mortgage debt is paid off at closing in the same manner as any other closing; and debt paid off must be  replaced when the new property is acquired or new cash added to offset any difference. Any debt relief not offset by new cash  will result in taxable boot.  On Last Two Tax Returns or Vacant Land  A taxpayer’s return provides the IRS with an audit trail of past activity.  Rental property must have appeared on Schedule “E” of  the return (or the corporate equivalent) if the property is portrayed as held for investment or for use Trade or Business. The  only exception will be vacant land.  How Long Owned  Dealers are not permitted to use Section 1031; generally their assets are “held for sale”, not “held for investment”. In order for  a property to be considered for long‐term capital gain treatment, it must have been owned by the taxpayer for at least one  year, preferably two.   Type of Replacement Property  Section 1031 requires that the property be “like‐kind”; all real property is like‐kind to all other real property.  The Like‐kind test  is more stringent for personal property       © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 20
  • 21.   Choices of Replacement Property  Under the simple rules, taxpayers may  select up to three potential new properties  and can buy any one, two or all three of  them.    More choices are available; however, the  dollar value of the choices is capped at  200% of the value of the old property.  Can Meet 45 Day Requirement  After the closing of the old or Relinquished  Property, taxpayers have 45 days to make  formal identification of Replacement  Property choices. No substitutions are  permitted after the 45th day.  Can Meet 180 Day Requirement  After the closing of the old or Relinquished  Property, taxpayers will have 180 days to  acquire the new or Replacement Property.  Exchanges must be accounted for within the same tax year; often it is necessary to extend the due date of the tax return to  accomplish this task and to get the full benefit of 180 days for a year‐end exchange.  Third Party Handling of Money  Receipt of funds by the taxpayer at closing is not permitted in a Section 1031 Exchange.  A Qualified Intermediary must be  designated to facilitate this process so that the taxpayer never has Constructive Receipt of the funds.      Relatives and attorneys or accountants that have represented the taxpayer in the last two years are prohibited from acting as  the Qualified Intermediary.  www.section1031.com/PDFs/New PDFs/WhatQualifies.htm Have qualification questions? Contact a respected Qualified Intermediary if you have any questions regarding your specific situation. Many Intermediaries, like Edmund & Wheeler, Inc., provide this consultation free of charge. A good relationship with a Qualified Intermediary can assist your practice in better serving it’s clients!   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 21
  • 22. The Five Most Common Section 1031 Misconceptions Well before delayed exchanges were codified (by IRS) in 1991, all simultaneous exchange transactions of Real  Estate required the actual swapping of deeds plus the simultaneous closing among all parties to a 1031 exchange.  In most cases these types of exchanges were comprised of many of exchanging parties, as well as numerous  exchange real estate properties. Now today, there's no such requirement to swap your own property with  someone else's property, in order to complete an IRS approved exchange. The rules have been refined and ratified  to the point cash rather than the property deeds can be used.          There was a time when all types of exchanges had to be closed on a simultaneous (same day) basis, now they  (1031) are rarely completed this way. As a matter of fact, a majority of the exchanges executed are closed now as  delayed exchanges.        Don’t make this mistake. There is a common misconception that “Like‐Kind” is literal.  There are currently 2 types  of properties that qualify as a 'like‐kind':  Property held for investment and/or Property held for a productive use,  as in a trade or business.          This statement is a perfect example of another 1031 exchanging myth. There are no provisions within either the  IRS Code or the US Treasury Regulations that can restrict the amount and number of real estate properties that  can be involved in an exchange.  Thus, in exchanging out of several properties into one replacement property or  the reverse of this in selling of one property and acquiring several others, are all perfectly acceptable strategies.      You can take cash out of a Section 1031 Exchange; however, the cash that you take out will be immediately taxable.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 22
  • 23. Section 1a Section 1031 & Accounting Contents How the Different States Approach Section 1031 .........................................................................................24 Reporting an Exchange to the IRS ...............................................................................................................25 Form 8824 ....................................................................................................................................................26 Completing Form 8824 (Part I) .....................................................................................................................27 Completing Form 8824 (Part II) ....................................................................................................................28 Completing Form 8824 (Part III) ...................................................................................................................29 What is Boot? ...............................................................................................................................................31 What is New Money? ....................................................................................................................................31 Exchanges That Cross Two Tax Years ........................................................................................................31 Can a Failed Exchange Be Fixed? ...............................................................................................................32 Section 1031 and Partnerships .....................................................................................................................33 Section 1031 or Section 1033? .....................................................................................................................34   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 23
  • 24.     Why do cash‐strapped states permit Section 1031 Exchanges?      Because by failing to do so, they miss out on investment capital that would have otherwise come to them, and studies have  shown that there are more dollars arriving than leaving on a net basis.  But these dollars have owners, and it’s these owners of    funds that hesitate to invest in locales where they cannot later get their money out.    In recent examples, Georgia, Mississippi, Oregon and South Carolina all had laws on the books that said that a Section 1031  Exchange within the state was fine, but outside the state was not; going outside the state subjected the entire gain (both gain    before the funds arrived and gain while the funds were in‐state) to the state capital gains tax.    Needless to say, billions of dollars that would have otherwise gone to these four states went elsewhere.  Now all four have  repealed these laws, in Georgia’s case, retroactively.  Montana is the most recent state to consider, and then reject an out‐of‐   state limitation on Section 1031.      Pennsylvania, however, doesn’t seem to get it:  Section 1031 is not recognized even in‐state, and PA state tax on all real estate  transfers, sales or exchanges, is due.    New Hampshire follows the Federal Rules very closely (but see below), as does Maine, Vermont and Rhode Island.  In these    latter three states, one must present a Waiver of Withholding to the Settlement Agent or state taxes will be due.  This Waiver  Rule also exists in NJ, NY, MD, SC, GA, CA, OR, HI and in other states.  Vermont has a special rule for its 6‐Year Land Gains Tax:  Both the Relinquished (old) Property and the Replacement (new)  Property must be in‐state, but the Holding Period shifts too, so the New Property starts at a higher point on the 6‐year  Exclusion Ladder.  (For EVEN or UP Exchanges only; for DOWN Exchanges, some of the Land Gains Tax is due.)  New Hampshire Warning:  The name(s) on the deed to the Relinquished Property must exactly match the name(s) on the deed  to the Replacement Property.  The only exception is a revocable (grantor) trust, which New Hampshire (and IRS) ignores.  Do not let your client take the new property in a single‐member LLC (SMLLC) unless the old property was in the same SMLLC;  any change of entity, although it may be disregarded for IRS purposes, is FULLY RECOGNIZED for New Hampshire Business  Profits Tax (BPT) purposes.    This means, for the moment, than Tenant‐in‐Common (TIC) investments are out of bounds for NH taxpayers, because of the  fact that the TIC sponsor insists that the investment be held in a newly created (Delaware) SMLLC.  The state has issued Notices of Assessment to taxpayers for transactions as far back as 2005.  Litigation is pending.  Stay    tuned….  © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 24
  • 25. Reporting an Exchange to the IRS  IRS Form 8824, a dual‐use form for reporting Like‐Kind Exchanges and Section 1043  conflict of interest sales.  We are only concerned with Parts I, II, and III.  Part I:  Describes the property sold and bought; the relevant dates; and whether  Related Parties were involved.  Part II:  Related Party Section.  The form is misleading in that it appears to be possible  to be able to buy the Replacement Property from a relative:  You cannot, unless the  Related Party is also exchanging, and the funds are ultimately given to an Un‐Related  Party.  However, you can sell your Relinquished Property to a relative, provided both  you and the relative hold what is received for two years after the conclusion of the  exchange.  Further, you and the Related Party must report to IRS on this form (Parts I &  II only) for the two subsequent tax years that neither you nor the Related Party sold or  otherwise disposed of the property you or they received in the exchange.  Note how a seemingly innocent event in the life of your relative (they sell your old  place) can trigger your tax!  Watch out for this.    Part III:  The numbers.  We will get to this below.                © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 25
  • 26.   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 26
  • 27.   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 27
  • 28.                           Part I:  Information Section (line by line instructions)   Line 1:  This is a brief description and the address of your Relinquished (old) Property.    Line 2:  This is a brief description and the address of your Replacement (new) Property.      Line 3:  When did you take ownership of your Relinquished (old) Property?  Month/day/year      Line 4:  When did you transfer the Relinquished (old) Property?  Month/day/year      Line 5:  When did you identify the Replacement (new) Property to the QI?  Month/day/year  Line 6:  When did you receive the Replacement (new) Property?  Month/day/year  Line 7:  Was the property given or received made with a Related Party?  Yes/No   Potential Audit Issues:  Does the property described on Line 1 appear on past returns in Schedule E, or is it vacant land or  other investment property?  Will the property described on Line 2 qualify for and be similarly  listed on Schedule E?    Is Line 3 vs. Line 4 more than 1 year (preferably 2)?  Does Line 4 vs. Line 5 exceed the 45 days?   Does Line 4 vs. Line 6 exceed 180 days, as adjusted for due dates of the return for the tax year in  Line 4?    Will the Schedule E filings for this Taxpayer reflect the gaps of ownership indicated by the entries    on Lines 4 & 6?    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 28
  • 29.                             Part II:  Related Party Section (line by line instructions)   If this Part applies to your situation, question the Taxpayer closely to be sure that it  was the Relinquished Property (and not the Replacement Property) that was acquired    by the Related Party; this is OK, if both the Taxpayer and the Related Party file this  form for this and for the next two tax years.  However, if the Taxpayer purchased his      Replacement (new) property from a Related Party and that person did not also  exchange, then this transaction has failed and the tax is due.  See Revenue Ruling  2003‐83.  See: http://www.unclefed.com/Tax‐Bulls/2002/rr02‐83.pdf  Line 8:  Related Party Information.  Your Relatives can be found in Section 267(b) &  707(b)(1)  Line 9:  Within the last 2 years, did the Relative who bought your (old) property sell it?   Yes/No  Line 10:  Within the last 2 years, did you sell the (new) property?  Yes/No  If either answer is “Yes”, then the Taxpayer must qualify for one of three exceptions:  Line 11(a):  There was a death of either of you.  Line 11(b):  There was an involuntary conversion (Section1033) of either property.  Line 11(c):  If Taxpayer’s new property was provided by a Related Party and that  person also did a Section 1031 Exchange, then the answers to Lines 9 & 10 will be    “No;”  nevertheless, attach an explanation to the return, and identify (with EIN) the  party from whom you bought.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 29
  • 30.                             Part III:  Financial Section  (line by line instructions)   Lines 12‐14 pertain to property given up for which no like‐kind property was received.  Tax is recognized    on Line 14.  The term “Other Property” means property of an un‐like kind.  Line 15:  All “Boot” goes on this line.  Any entries on this line fall to Line 23, and are recognized.   Examples are cash received that was not replaced (“Cash Boot”); any decrease in net indebtedness  (“Mortgage Boot”); and the FMV of any Other Property received (such as a vehicle, gemstones, fine art,  etc.) that the parties may have used to balance their transaction.   Line 16:  FMV of the Replacement (new) Property.                          Line 17:  Add Line 16 + 15.  Line 18:  Adjusted basis of the Relinquished (old) Property + all net cash that was added + any increase in  net indebtedness + all closing costs & exchange fees.   (Old Basis + “New Money”)         Line 19:  Subtract Line 18 from Line 17.  This is the Realized Gain.  Line 20:  Enter the smaller of Line 19 or Line 15, but not less than $0.00.  Note that any entry on Line 15  is now here.  Line 21:  If the old Property was depreciable, and the new one is not, there will be some depreciation  recapture.  Reduce Line 20 by this amount and report on Form 4797.  Line 22‐23:  This is the Recognized Gain.  If even or up and no boot, this number will be $0.00    Line 24:  This is the deferred gain, the “interest‐free loan” from Uncle Sam.  © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 30
  • 31.     Boot Netting Rules:    1.  Cash paid to buy New Property offsets cash received  and/or any debt relief in the sale of old property.      2.  Debt assumed or incurred to buy the New Property    offsets any debt relief (but not any Cash received) in the    sale of the Old Property.                      “New Money” goes on Form 8824, Line 18:    Net new cash and Net new debt adds to the Adjusted    Basis, however, Other Property added (vehicle, computer,  etc.) does not.  If Other Property is added, pay tax on  these articles on Lines 12‐14.  Strike Price is the selling price of the Relinquished (old)  Property less sales costs.              Set the closing of the Old Property to fall in these  windows to give your Client an election under Reg   1.1031(k)‐1(j) (Coordination of Sec. 1031 & 453):    Provided the Client had a bona‐fide intention to exchange  at the start of the Exchange Period, and the Client  receives Cash Boot in the next Tax Year,  they can elect  which year to pay tax on said boot.  However, tax on  Mortgage Boot must be paid in the year of receipt.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 31
  • 32.                             So, if your Client has sold an asset and then learns about Section 1031 after the closing,      they can:      1.Un‐close with the Buyer.  The more time that has passed the harder this will be,    especially if a bank has recorded a mortgage and disbursed funds.  To un‐close, the  Buyer must receive the funds back and your Client must receive the deed back.  Be    prepared for adverse Transfer Tax consequences, but in some cases, Corrective Deeds  have been used.    2.Re‐close with the Buyer properly, using a Q.I.   An Exchange Agreement is prepared    and executed.  Settlement Instructions are issued.  An Escrow Account is established.  A    new deed is prepared, signed with the later date and recorded.  Buyer’s funds now go  through the QI to the Qualified Escrow Account.  The time periods begin.     3.  As a general matter, Rescissions are expensive, and gaining the full cooperation of    the Buyer and their Bank may prove to be impossible.    4.  Must be done in the same tax year; transactions cannot be rescinded after the end of  the tax year.                                © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 32
  • 33.     Partnership interests (or those of any entity) are NOT    EXCHANGEABLE per Section 1031(a)‐2.    “Drop & Swap” is where a partnership distributes to its  partners tenancy‐in‐common interests in its assets;    these people subsequently exchange while the  partnership sells.  The technique can be made to work if    the distributee partners establish separate holding  periods in the assets before the exchange (1 year    minimum, 2 years better).  Gets pretty awkward.    Form 1065, Question 14:  “At any time during the tax    year, did the partnership distribute to any partner a  tenancy‐in‐common or other undivided interest in    partnership property?”        Nor does the “Swap & Drop” technique work either,  where the entire partnership does the exchange and  then distributes some or all of the property it receives to  departing partners.    Again, the issue appears to be one of “holding period;”  the partnership has a holding period in the relinquished  assets, and IRS wants to see a continuation of this  holding period in the replacement assets.  Form 1065, Question 13:  “Check this box if, during the  current or prior tax year, the partnership distributed any  property received in a like‐kind exchange or contributed  such property to another entity (including a disregarded  entity)”    So, what to do?  Preserve the partnership, its holding  period and its EIN # at all costs; remember, to be a  partnership, there must be 2 or more members.  Close on the asset to be sold, and elect to receive some  “boot” at the closing, which will  be cash and some debt  relief; distribute this “boot” to the departing partners.   The rest of the partnership exchanges in the usual way,  and the partnership receives like‐kind replacement  property, which it will keep.    This leaves the answers to both Questions 13 & 14 on  Form 1065 “No.”  Reflect the cash and debt relief distributions (“boot”) on  the K‐1’s of the departing partners.  © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 33
  • 34.   When faced with a disaster loss or a condemnation, a decision must be made:  Does the taxpayer  stick with the rules of Section 1033 (Involuntary Conversions), or does s/he attempt to comply with  Section 1031?  In a Section 1033 transaction, the taxpayer can handle funds, and has more time (2+ years) to  replace the lost/taken property, but this replacement must be “similar or related in service or use”  to the old property.  IRC 1033(a)‐(1).  So, under these rules, it is impossible to replace an improved  property with an unimproved one, or a dwelling for a warehouse, etc.  However, let’s say that your property is under agreement of sale and it is damaged by fire or storm  prior to closing.  You could either assign the insurance check to the buyer and close as a Section  1031 Exchange, or you could renegotiate the price of your old property, and close as a combined  Section 1031 Exchange (as to the land and the undamaged portion), and as a Section 1033  Involuntary Conversion (as to the insurance proceeds).  You could handle the insurance funds but  not the rest; Section 1031 time periods would have to be observed and the Replacement Property  must be such that you could add the lost improvement to it before the expiration of 2 years.  Another situation is where a governmental taking is being discussed, but the taxpayer has not yet  received a formal “Notice of Eminent Domain.”   Under these conditions, a Section 1031 Exchange  can be set up to receive the proceeds and reinvest them in “Like‐Kind”  (as opposed to “Similar  Kind”) property.  An example of this was a Conservation Easement (“CE”) sold to a Southern New  Hampshire town (which had voted to take it if necessary).  The funds were reinvested in ranchland  and a mountain cabin in Montana, like‐kind to the CE under Section 1031, but definitely not similar  kind to a CE under Section 1033.          © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 34
  • 35.   Section 2 Case Studies & Real-life Examples Contents Hypothetical Example – Pay Taxes/Defer Taxes. .........................................................................................36 The Most Common Exchange Types ............................................................................................................39 Reverse Exchanges – Choice of Entity.........................................................................................................39 Reverse Exchanges – Transfer Taxes ..........................................................................................................39 A Note on Second Homes ............................................................................................................................40 Edmund & Wheeler Case Studies ................................................................................................................41 Case Study 1 – Delayed Exchange ..............................................................................................................42 Real-life Example – Trading a Campground for Several Properties ....................................................43 Real-life Example – 6 Properties for a Dozen Condos .........................................................................43 Converting Investment Property into Personal Residence ...................................................................44 Case Study 2 – Reverse Exchange ..............................................................................................................45 Real-life Example – Buying a New Property before the Old Property Sells .........................................46 Acquire a Rental Property for a Family Member ..................................................................................46 Case Study 3 – Build-to-suit Exchange ........................................................................................................47 Real-life Example – Commercial Property for Raw Land with Improvements ......................................48 Case Study 4 – Delayed Build-to-suit Exchange ..........................................................................................48 Real-life Example – Industry Specific Building on Identified Property ..................................................50 Case Study 5 – Delayed Exchange, Reverse Format...................................................................................51 Real-life Example – Acquiring Abutting Property to Primary Residence ..............................................52 The Four Simple Qualification Questions .....................................................................................................53   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 35
  • 36. These two Property Owners have identically valued  properties with identical tax consequences, however, one  chooses to sell and the other chooses to use The Power of  Section 1031, and take an interest‐free loan from the  Federal and State Government.              These are the assumptions.  The Federal Tax is 15% and  the State Tax is 5%, but past depreciation these taxpayers  have taken will be recaptured at the rate of 25%.   However, the second Property Owner has no intention of  funding the tax, as a Section 1031 Exchange is planned.   Another assumption is that the values of the Replacement  Properties grow at a uniform 6% rate per year, without  compounding.   After 5, 10 and 15 years we will take a  look at each situation.           The two properties both sell for $300,000, but one  Property Owner elects to pay the tax ($65,000) while the  other elects to accept the interest‐free loan.  They both  reinvest, but one has $65,000 more than the other, and as  a consequence, his investment commands more monthly  cash flow.  So the effects of the interest‐free loan are  immediate: The Property Owner who took the loan earns  $325 more per month on his investment than his tax‐ paying counterpart.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 36
  • 37. Now let’s look at the situation 5 years out.  Each owner  sells his investment, but again Owner #1 pays the tax  while Owner #2 elects to take a further advance on the  interest‐free loan.  Further, since more principal was  invested, the value of the 2nd Owner’s investment is worth  almost $100,000 more than the 1st Owner’s.  Granted this  difference is pre‐tax, but read on....            At 10 years, the pattern repeats: Owner #1 pays taxes  again, but Owner #2 accepts a further advance on the  interest‐free loan.  This equity is worth $145,664 more  than Owner #1, and, as a consequence, it commands $728  more income per month.                We conclude the example here, but you get the idea: By  deferring the tax at the beginning, Owner #2 has made  good use of free government money.  This investment is  now worth $221,044, and consequently commands a  monthly income of $3296, more than $1056 more per  month than Owner #1's income.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 37
  • 38. And here is a summary of the wealth  building effects.  Owner #2's equity is worth  more than $211,044 than Owner #1's, and  has grown by 119% (instead of 49.3%)  thanks to the use of the tax‐free loan.   Further, at this point, let’s pretend that  Owner #2 takes leave of his senses and  decides to pay the tax instead of exchanging  again and again.    The total taxes due from Owner #2 at the 15‐year point are $136,810, which leaves this owner $74,234 ahead of  Owner #1 on an after‐tax basis.  This is the true comparison because, after all, Owner #1 was paying tax all the  way through, and Owner #2 was deferring it, by use of The Power of Section 1031.  At the 15th year, Owner #2 has received an  additional $92,779 in cash flow over Owner #1.    Can any sensible investor afford to ignore these  two figures??    When you think about it, Owner #1 has reduced  his estate and lessened his lifestyle because of his  failure to take advantage of Section 1031.  For this reason, any taxes that can be legally  deferred should be deferred so that the extra  funds can be put to work.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 38
  • 39.   By far, the most common type of Exchange is the Delayed  Exchange. This simple Exchange allows a client to sell his  property, identify a new property (within 45 days), and  then purchase a Replacement property (s) with the funds.   Often times The Reverse and Build‐to‐Suit Exchanges are  misunderstood and not presented to clients. This can be  and extremely costly mistake. Often times the clients that  have the most to gain by an Exchange do not realize that  these types of Exchanges are possible. Not only are they  possible, they tend to be the most powerful vehicles for  leveraging the Government’s money!    cbrady@garnethill.com     We prefer to use a C‐Corporation in our practice. One can  have a fiscal tax year without IRS permission, so we set  the start of the corporation’s fiscal year to be just before  the commencement of the exchange.  Only 180 days of the fiscal year will be used, leaving the  balance of the fiscal year to prepare and file an “initial”  and “Final” tax return (Form 1165).  You definitely do not want a tax filing requirement in the  middle of an exchange, when the EAT is loaded with  assets and debt.  At the end of the exchange, however,  the EAT’s figures are all zeroed out.      Transfer taxes are a fact of life.  Thus, on small  transactions, a Reverse Exchange may not make economic  sense.  Calculate the taxes the Client would pay on a straight sale:   if the exchange expenses and transfer taxes are a small  percentage of this to obtain full tax deferral, then it’s  worth it to proceed with a Reverse Exchange.  Remember,  the tax is being loaned by the Government to your Client,  without interest.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 39
  • 40. www.irs.gov/pub/irs-drop/rp-08-16.pdf Beware – this is one of the most frequently addressed issues when discussing a  Section 1031 Exchange. There are many investors who would love to Exchange into  a mountain get‐a‐way, the short answer is that second homes typically DO NOT  qualify for Section 1031 treatment; however:  The savvy investor will Exchange into a property that they wish to eventually own as  their second home. They need to hold the home as an investment for a minimum of  24 months after the Exchange as rental property.    A few simple rules must be followed when renting out an investment property:   The property can be rented to a family member, but the family must pay fair  market rent for the property.   The Property must be rented a minimum of two weeks per 12 month period  X 2.  It is very important to save any documentation associated with the  rental including receipts, advertisements, property management  Agreements, etc.   You are allowed to use the property for “fun” for a maximum of 14 days or  10% of the rental period, whichever is greater.     Extra days for maintenance are allowed, but you are well advised to keep a    diary of the property including all visits and expenses related to it for  maintenance, taxes, etc. This will help to document your intent.  © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 40
  • 41. Case Studies Over the many years that Edmund & Wheeler has been facilitating Exchanges, we have discovered that exchanges  generally can be described in 5 distinct types. The most common type is Case Study 1 – the Delayed Exchange. We  will be reviewing each case study, along with some real‐life examples of how these Exchanges work.   Case Exchange Type Description Study 1 Delayed Exchange In this format, the client gets the most common (Existing Property) Direct   type of Section 1031 Exchange.  Format  Delayed/Simultaneous Exchange In this format, property desired by the Exchange (Existing Property) Reverse Format 2 client is parked in a Single Purpose Entity (SPE) until the client's current property can be sold.  (Exchange Last)  Delayed Build-to-suit In this format, the client gets a Section 1031 Exchange Direct Format  3   Exchange and acquires new, improved property, built-to-suit.  In this format, property desired by the client is Delayed/Simultaneous Build- parked in a Single Purpose Entity (SPE) until the to-suit Exchange Reverse Format (Exchange Last)  4 client's current property can be sold. During the parking period, the new property is improved by the SPE to the client's wishes.  In this format, property desired by the client can Delayed Exchange (Existing Property) Reverse Format (Exchange first) 5   be purchased immediately by Client, as Client's old (Relinquished) property is parked in a Single Purpose Entity (SPE) until it can be sold to buyer. www.section1031.com/cases.htm   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 41
  • 42. CASE STUDY 1 ABDC Delayed Exchange (Existing Property) Direct Format In this format, the Client (A) gets a Section 1031 Exchange between steps 3 and 7 assuming all of the rules have been followed. This is the most common type of exchange.  The Exchange Agreement with Edmund & Wheeler, Inc. which governs the overall transaction. This document MUST be in force before the closing. The Purchase and Sale Agreement to sell the Relinquished Property. This step may take place before Step 1 (the only out- of-sequence exception).  The closing of the Relinquished Property; if several are involved, the first in chronological order. In this step, the deed to the property is given to the Buyer.  Rather than going to the Exchangor, the Buyer's funds are used to pay all of Exchangor's expenses (including mortgages, if any), with the NET going directly to a money center bank into a separate, interest- bearing account established in the Exchangor's name and Social Security number.  This is an interactive step encompassing all communications post-closing with the Exchangor and Edmund & Wheeler, Inc. Included are the 45-day Identification Letter, instructions on how much of the account to be expended on particular properties, and final approval to close on the final choice(s).  These are the precise instructions to Exchangor's attorney, bank or Title Company for the closing of the Replacement Property, and the wire transfer of approved funding.   This is the Exchangor's receipt of the direct deed from the owner of the Replacement Property (C); the Exchangor achieves a Section 1031 Exchange between Steps 3 and 7, where in Step 3 a deed is given and in Step 7 a deed is received, and in between the Exchangor had no control (or Constructive Receipt) of funds.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 42
  • 43. This Exchangor sold one large lakefront property and  proceeded to use the next 45 days driving up and down  the East Coast selecting Replacement Properties. He was  in the enviable position of being able to identify more than  three Replacement Properties (the simple rule). He used  the 200% rule (to identify as many properties as he  wanted as long as the total value of the properties  identified did not exceed twice the value of the  Relinquished Property). In the end, he acquired sixteen  new properties from Maine to Florida, many of them  single family (rental) residences, including two new  campgrounds.   This Exchange allowed him to diversify his portfolio, generate significant cash flow from his new properties, and pay no  capital gains tax. As they say in the business "one happy camper!" If he determines that one or more of his selections  doesn’t satisfy his investment objectives, then after a year or two, he can exchange again.   We are currently working with a client to acquire a  significant piece of commercial real estate in New England.  The client is in the process of selling six separate pieces of  property in order to aggregate sufficient funds to make the  new Replacement Property purchase. The client has been  extremely careful (with our guidance) to time his sales and  the new purchase all within a 180 day time frame. This is  key to the success of the Exchange due to the fact that he  will acquire not just one piece of property, but rather over  a dozen condominiums. You will recall that you have two  basic rules when it comes to identifying your Replacement  property choices, the Three‐Property Rule and the 200%  Rule. This Exchange is an example of yet a third method of identifying Replacement property. It allows the client to acquire  an unlimited number of properties, without regard to value or number as long as he acquires 95% (FMV) of what he  identified.  This can be a little nerve‐racking for the investor and it pays to have a back‐up plan.  http://www.section1031.com/EWIExchanges.htm    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 43
  • 44. Our client exchanged out of a three unit building that had been held for many years.   In preparation for retirement, the client acquired a Florida rental property.  After  renting the Florida property for two years, our client will convert the use from rental  to personal and move into the property as a primary residence.  There isn’t any  prohibition against converting business/investment property to personal use.   Be  aware that upon the sale of the property, the client will NOT be entitled to the full  Section 121, personal residence exclusion of $250,000/$500,000.  It will be prorated  based on the time used as rental or second home after January 1, 2009.        http://www.section1031.com/EWIExchanges.htm    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 44
  • 45. CASE STUDY 2 ACBD-Delayed/Simultaneous Exchange (Existing Property) Reverse Format - Exchange Last In this format, property (C) desired by the client (A) is parked in a Single Purpose Entity (SPE) until client's current property (A) can be sold. Section 1031 Exchange occurs between steps 7 and 11.  The Exchange Agreement with Edmund & Wheeler, Inc. which governs the overall transaction. This document MUST be in force before the closing. Since the Replacement Property will be purchased (and Parked) before the sale of the Relinquished Property, a source of funds for the purchase must be arranged. This can be the Exchangor, or their bank. If a bank, the Exchangor will be expected to provide a guarantee.   As Edmund & Wheeler, Inc. is the signer on the Qualified This is the loan to the Single Purpose Entity (which Escrow Account, it causes the balance to be paid to the EAT the IRS has renamed an Exchange Accommodation in exchange for its deed for the Replacement Property executed Titleholder (EAT)) that will buy the Replacement Property in favor of the Exchangor. from its owner (C) and hold it until the Relinquished Property (A) can be sold to the Buyer (B). Before the deed can be issued, however, the EAT must pay off (or pay down to the extent of available cash) the loan This is the actual purchase of the Replacement made to it at Step 3, above. Property from its owner (C). This is the Exchangor's receipt of the direct deed from At this step, the Entity (and not the Exchangor) the EAT as owner of the Replacement Property; provided the becomes the legal owner of the Relinquished Property. deed is delivered to the Exchangor on or before the 180th day. The 180-day Exchange Period commences. The Exchangor achieves a Section 1031 Exchange between Steps 7 and 11, where at Step 7 a deed is given and at The Relinquished Property goes under Agreement of Step 11 a deed is received, and in between the Exchangor had Sale to Buyer (B). no control (or Constructive Receipt) of funds. The Exchangor gives Buyer (B) a deed, and the transaction closes; this step must occur before the 180th day, with enough margin to complete Steps 8-11. Rather than going to the Exchangor, the Buyer's funds are used to pay all of Exchangor's expenses (including mortgages, if any), with the NET going directly to a money center bank into a separate Qualified Escrow Account established in the Exchangor's name and   Social Security number. © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 45
  • 46. George’s favorite Exchange was an "acquire first,  reverse exchange". Sounds complicated, but it’s not.  Our client had negotiated the purchase of a significant  new property but had been unable to sell a piece of  existing property in time to do the deal. Rather than  jeopardize the purchase, we created a single purpose  entity (SPE), in this case, a Massachusetts trust, to  acquire the new (parked) property.   Edmund & Wheeler, Inc. was engaged to create the  new entity, hold the property until the old property  was sold and the proceeds are available to acquire the  "parked" property.   The Exchangor funded the purchase with his own and other bank resources. Once the old property was sold, the new  property was deeded to the Exchangor. Since it is not permissible to own the old and new property at the same time, this  strategy accomplished the Exchangor’s desired outcomes, again without capital gains tax.  This is a case where you can benefit your own family  without paying capital gains tax.  Our client wanted to  multi‐family rental property that had been owned for  many years and rented to college students.  The cash  flow was OK but there was deferred maintenance that  was starting to affect the market price of the property.     Meanwhile, the client’s daughter had moved to a  suburb of Chicago and wanted to acquire a property  that would be a safe secure primary residence and  provide her mom with a nice place to visit the  grandchildren.   A property was identified and purchased by an Exchange Accommodation Titleholder (EAT) with a loan from the client.  Later, our client negotiated the sale of the multi‐family property and the funds were repaid to her and the EAT deeded  her Illinois property, closing out the Exchange.  As long as the property remains as rental property in the hands of the client and fair market rent is charged, then this  strategy is perfectly acceptable.  The property can be gifted off in increments of $13,000 per person, per year.    http://www.section1031.com/EWIExchanges.htm  © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 46
  • 47. CASE STUDY 3 ACBD-Delayed, Build-to-Suit (or Improvement) Exchange Direct Format In this format, client (A) gets a Section 1031 Exchange between steps 3 and 12 and acquires new, improved property. All rules MUST be followed.  The Exchange Agreement with   Edmund & Wheeler, Inc. which governs the overall transaction. This document MUST be in force before the closing. The Purchase and Sale Agreement to sell the Relinquished Property. This step may take place before Step 1 (the only out- of-sequence exception). This Step is the legal acquisition. At (or hopefully The closing of the Relinquished Property; if well before) this time, Exchangor engages Contractors several are involved, the first in chronological order. and Materialmen to effectuate the desired improvements. In this step, the deed to the property is given to the Buyer. This step starts the 45-day Identification The vendors begin work, and soon enough, bills begin Period and the 180-day Exchange Period. to arrive, addressed to the EAT, the legal owner of the property. Rather than going to the Exchangor, the Buyer's funds are used to pay all of Exchangor's All invoices are presented to the Exchangor for expenses (including mortgages, if any), with the NET approval for payment from the Account. going directly to a money center bank into a separate, interest-bearing Qualified Escrow Account established in the Exchangor's name and Upon such approval, further advances are made by Social Security number. the QI to the EAT to cover each payment. The Exchangor has identified property C The vendors are timely paid, until funds are (property needing improvements) as the Replacement exhausted. Property; at this Step, Edmund & Wheeler, Inc. causes the necessary purchase price for this property This is the Exchangor's receipt of the direct deed to be advanced to the Single Purpose Entity (which from the EAT as owner of the Replacement Property; IRS has renamed an Exchange Accommodation provided the deed is delivered to the Exchangor on or Titleholder (EAT)) which has been formed to own and before the 180th day (as adjusted), the Exchangor improve the identified Replacement Property. achieves a Section 1031 Exchange between Steps 3 and 12, where at Step 3 a deed is given and at Step 12 a   deed is received, and in between the Exchangor had no This is the closing for Property C; this Step is the funding; and control (or Constructive Receipt) of funds. © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 47
  • 48. This is a classic "build‐to‐suit" transaction. Our client sold a commercial property and  directed the proceeds of the sale by virtue of an Exchange Agreement to us as  Qualified Intermediary. We created a single purpose entity to conduct the business,  in this case a NH corporation. We then purchased, in the name of the new  corporation, a piece of raw land (which had been subdivided and permitted) using  the exchange proceeds. The client delivered specific instructions for the type of  building to be constructed on the site and directed who the contractor would be to  perform the work. We made a series of progress payments based on the work in  place and the "ok" to pay by the client.  Once all of the sale proceeds of the Relinquished Property were exhausted, the new  property was deeded to the client and the corporation was closed and tax return  filed on its behalf. The entire process was concluded within 180 days.    http://www.section1031.com/EWIExchanges.htm    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 48
  • 49. CASE STUDY 4 ACBD-Delayed/Simultaneous Build-to-suit Exchange Reverse Format - Exchange Last In this format, property (C) desired by the client (A) is parked and improved in a Single Purpose Entity (SPE) until client's current property (A) can be sold. Section 1031 Exchange takes place between steps 10 and 14.  The Exchange Agreement with Edmund & Wheeler, Inc. which governs the   overall transaction. This document MUST be in force before the closing. Since the Replacement Property will be purchased (and Parked) before the sale of the Relinquished Property, a source of funds for the purchase must be arranged. This can be the Exchangor, or their bank. If a bank, the Exchangor will be expected to provide a guarantee. This is the loan (and Line of Credit) to the Single The Exchangor gives Buyer (B) a deed, and the Purpose Entity (which the IRS has renamed an transaction closes; this step must occur before the Exchange Accommodation Titleholder (EAT)) that will 180th day, with enough margin to complete Steps 11-14. buy the Replacement Property from its owner (C) and improve it and hold it until the Relinquished Rather than going to the Exchangor, the Buyer's Property (A) can be sold to the Buyer (B). funds are used to pay all of Exchangor's expenses (including mortgages, if any), with the NET This is the actual purchase of the Replacement going directly to a money center bank into a separate Property from its owner (C) by the EAT. Qualified Escrow Account established in the Exchangor's name and Social Security number. At this step, the EAT (and not the Exchangor) becomes the legal owner of the Relinquished Property. The As Edmund & Wheeler, Inc. is the signer on the 180-day Exchange Period commences. At (or hopefully Qualified Escrow Account, it causes the balance to be well before) this time, Exchangor engages Contractors and paid to the EAT in exchange for its deed for the Materialmen to effectuate the desired improvements. Replacement Property executed in favor of the Exchangor. The vendors begin work, and soon enough, bills begin to arrive, addressed to the EAT, the legal owner of the property. Before the deed can be issued, however, the EAT must pay off (or pay down to the extent of available cash) the loan made to it at Step 3, above. All invoices are presented to the Exchangor for approval for payment from the Line of Credit. This is the Exchangor's receipt of the direct deed from the EAT as owner of the Replacement Property; The vendors are timely paid, until the provided the deed is delivered to the Exchangor on or predetermined match point has been obtained. before the 180th day, the Exchangor achieves a Section   1031 Exchange between Steps 10 and 14, where at The Relinquished Property (A) goes under Step 10 a deed is given and at Step 14 a deed is Agreement of Sale to Buyer (B). © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 49
  • 50. Our client required an industry specific building to be constructed on property that he  identified.  We created a single purpose entity to acquire the targeted land and then  began construction of the facility.  The construction was completed at day 135 and the  client moved his existing business in to the facility.  Once the former building was  vacant, it could be shown to prospective buyers and sold before day 180.      http://www.section1031.com/EWIExchanges.htm    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 50
  • 51. CASE STUDY 5 Delayed Exchange (Existing Property) Reverse Format - Exchange First In this format, property (C) desired by the client (A) can be purchased immediately by Client (A), as Client (A)'s old (Relinquished) Property (A) is parked in a Single Purpose Entity (SPE) until it can be sold to buyer (B). Section 1031 Exchange takes place between steps 3 and 6.  The Exchange Agreement with Edmund & Wheeler, Inc. which governs the overall transaction. This document MUST be in force before the closing. In consultation with the QI, the Exchangor determines what the NET proceeds would have   been had the Relinquished Property sold that day; this is the cash amount of a loan to be made by the Exchangor to the Special Purpose Entity (Exchange Accommodation Titleholder (EAT)) that will buy the Relinquished Property from the Exchangor (A) and hold it until this property can be sold to the Buyer (B). In this Step, the Exchangor executes a deed to the Relinquished Property to the EAT. Not shown is a mortgage back to the Exchangor to provide for security. The 180-day Exchange period commences. The exact amount of the loan funds in Step 2 are turned over to Edmund & Wheeler, Inc. as QI. Since the Exchangor has identified Property C as the Replacement Property, the QI is instructed to fund its purchase. This is the Exchangor's receipt of the direct deed from the owner of the Replacement Property (C); the deed is delivered to the Exchangor almost immediately after the Steps above; the Exchangor achieves a Section 1031 Exchange between Steps 3 and 6, where in Step 3 a deed is given and in Step 6 a deed is received, and in between the Exchangor had no control (or Constructive Receipt) of funds. Exchangor's former property (the Relinquished Property) is now legally owned by the EAT, however, the Exchangor is expected to continue the marketing effort and to approve all offers. When Buyer (B) is found, the EAT executes a deed to the Exchangor's Relinquished Property in favor of this person. The Buyer (B) pays the purchase price to the EAT, which uses the funds to: Payoff the bank (if any); and   To repay the initial loan from the Exchangor.  © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 51
  • 52. Our client had an opportunity to acquire abutting property to his primary residence.  The  new property was vacant land but included more than 500 feet of shore front land.  The  client arranged for a borrowing sufficient to acquire the new property but since he  couldn’t own the new property and the old property at the same time, he sold the old  property to a single purpose entity for the amount of money that he had just borrowed.  The old property deed was placed in the name of the entity.  Next, the entity passed the loan funds to Edmund & Wheeler, which in turn gave them to  the Seller of the shore front land, and this Seller deeded our client the property.  Then the client went to work to sell the old property that was held by the entity.  This  sold within 180 days and the Buyer’s funds were passed through the exchange to pay  down the debt on the new shore front property.   http://www.section1031.com/EWIExchanges.htm    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 52
  • 53. Now that you understand all of the technical aspects of  Section 1031, it’s time to sift all of this information into  an easy to understand format to help you identify  exchange opportunities.    Since we have learned that only certain property  qualifies for exchange treatment, we want to  understand if the property has had personal use or has  it only been used for qualified purposes.  Also, we want to exclude items from the transaction  that are not exchangeable, by doing a Price Allocation.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 53
  • 54. This helps us to understand the tax basis of the  property in the client’s hands.  If we discover that the  property was acquired via a previous exchange then it  will almost certainly need to be exchanged again.   The property should have been owned for not less than  one year (need long term tax treatment qualification),  however see Rev Proc 2008‐16 pertaining to  residences.    Clients often fail to understand that stepped  transactions require special care in Section 1031  transactions.  The better informed we are at the  beginning of the process, the better results at the  conclusion of the transaction.  Right‐sizing the transaction is important for  the desired results.     Understanding the client’s objectives is key to advising  them on the correct strategy to undertake.   Going  even or up in value will avoid taxable “boot” but if the  client wants some cash, it is perfectly acceptable; they  will put that cash at risk of taxation and not the entire  transaction.   Helping them select the right identification rule to  follow is equally important to the success of the  exchange.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 54
  • 55. Section 3 Alternate Exchange Opportunities Contents Tenants In Common (TIC) ............................................................................................................................56 Why use a TIC? ...................................................................................................................................56 How does it work? ...............................................................................................................................57 Direct ownership vs. a TIC ...................................................................................................................58 TIC Benefits .........................................................................................................................................59 Securities TICs vs. Real Estate NNN and Master Leases ...................................................................61 Umbrella Partnership Real Estate Trust (UPREIT) .......................................................................................62 Section 721 Exchange Overview .........................................................................................................62 UPREIT Benefits ..................................................................................................................................63 Oil & Gas Leases ..........................................................................................................................................64 O&G Characteristics ............................................................................................................................64 O&G Benefits .......................................................................................................................................65 Structured Sales ...........................................................................................................................................66 The Structured Sale in Real Estate Transactions ................................................................................67 The Structured Sale and 1031 .............................................................................................................68 The Structured Sale and selling a business .........................................................................................69 Structured Sale Diagram......................................................................................................................70   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 55
  • 56. Of the alternative Exchange strategies, the Tenants‐In‐ Common vehicle has become increasingly popular in  the past few years. TICS offer the clients the  opportunity to passively invest in a Grade A Real Estate  Offering, resulting in monthly payments without the  hassles of owning and managing typical investment  real estate.              Since 2002 the IRS has recognized TIC properties as  eligible for Exchange under Section 1031. Since that  time, hundreds of spectacular properties have been  purchased by TIC sponsors and sold to investors that  would not typically own this type of real estate.  See  Rev. Proc 2002‐22.              Many investors have owned and managed investment  real estate on their own for years, all the while dealing  with “the terrible T’s”. Many investors wish to keep a  portion of their portfolios in the real estate class, but  are very weary of dealing with the management  hassles!  TICs provide all of the benefits of owning commercial  real estate, with many advantages without dealing  with “trash, toilets and tenants”.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 56
  • 57. As a fractional ownership, a group of owners (not  to exceed 35) can take ownership in Grade A  investment property.  A check is sent each month with the appropriate  share of the revenues generated by the property,  and the properties are typically managed by the  best property managers available in the area.  Along with the positive aspects of owning a TIC,  investors can be subject to “cash calls” should the  properties expenses exceed its income.  TICs are purchased in much the same way as  any property. With the primary difference  being that the property is identified well in  advance, and the ownership position is  reserved until closing.  Note that there is also non‐recourse  financing involved, with all the benefits  associated with Exchanging with debt.  These are a sampling of the properties that have  been made available as TICs in the past few  years.   Since 2002 there have been hundreds of these  types of properties purchased by TIC investors,  and to date, the vast majority has performed at  or above expectations.       © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 57
  • 58. TICs can provide an unprecedented level of diversity by spreading a fractional real estate investment throughout multiple  geographies, classes and areas. Many clients have Exchanged whole ownership in one type of building located in one area, to  many types of buildings in many areas!  The chart below outlines some similarities, but more importantly some key differences in direct ownership vs. TIC ownership.   Note arrows.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 58
  • 59. 1  Freedom from day‐to‐day  management responsibilities. With no more property to manage, you have  more leisure time to relax or pursue other  Interests. In addition, because someone else is  managing the property for you, there are no  geographical limitations. You are free to invest  in real estate markets nationwide.     2  Professional people managing the property on your behalf.  The typical Exchange Equity deal is on a long‐term lease to a Credit Rated Tenant (A+‐BBB) who will have  strong financials and extensive experience in the management and upkeep of the property. This is the  underpinning of the approach of a typical TIC sponsor. This allows them to examine offerings in all sectors,  types, and locations of real estate. In addition, because many sponsors co‐invest in the properties that they  sponsor, they have a vested interest in the performance of the properties. You can relax because it is the  tenant’s responsibility to maintain the property, and for the sponsor to collect the rents, service the  mortgage (if any), and handle all of the other asset management responsibilities.  3  Increased monthly cash flow.   Your investment in a TIC interest provides you with a check every month. The cash flow that owners typically  receive generally starts at 6.25‐8% per annum. Because exchangors take on a new depreciation schedule,  however, cash distributions are typically 50‐100% tax sheltered, depending upon asset class and leverage.  The equity appreciation in well‐located real estate speaks for itself.  4  Properties are identified and researched for you.  TIC sponsors do all of the work of locating, negotiating to purchase, providing all of the required due  diligence, arranging for the financing, and other work necessary to acquire the new investment property and  set up the TIC program. A wide range of TIC properties exist for sale, in many different asset classes and  geographical locations, so with the help of your TIC sponsor, you will be able to easily identify possible  properties within the requisite 45 days, and acquire them within 180 days. In many cases, TIC sponsors offer  a "back‐up" in case your preferred purchase becomes unavailable for some reason.   5  Invest in larger, safer, higher‐quality institutional properties.   As a TIC, you end up with a larger, higher‐quality building leased to Credit Tenants with greater financial  strength and stability than any other type of real estate investment typically available to individual investors.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 59
  • 60. 6  Benefit from multiple tax advantages.   Not only can you defer capital gains taxes until death, at which point they are forgiven, but you also  can gain additional tax advantages through a new depreciation schedule and in doing so typically  shelter 50‐100% of your cash flow.  7  Gain non‐recourse debt.   Accredited investors assume institutional grade, pre‐arranged, non‐recourse (no personal guarantee)  financing with easy approval. You can invest in properties that have no debt, or in ones with up to  75% leverage.  8  Start investing with as little as $50,000.   TIC investments have a much lower minimum investment than sole ownership allowing for greater  flexibility. Variable investment sizes can start as low as $50,000 and can be structured to match an  owners’ equity and debt requirements.   9  A first‐class way to diversify your assets.   Large net proceeds may be split among several properties, and so invested in several different  markets and asset classes.  10  Preserve your capital by investing in properties that continue to appreciate.   Profits can be locked in by selling out of highly appreciated markets and then re‐investing 100% of  the net proceeds from those sales into growth markets.  11  Simplify your estate planning.   TIC can simplify wealth transfer and estate issues. After all, it’s much easier to divide a monthly check  among heirs than it is to divide a building.        © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 60
  • 61. Comparison of Tenant‐In‐Common Structures Security Interest   versus Real Estate NNN & Master Lease   Feature TIC as TIC as TIC as Security Real Real Estate Estate (NNN) (Master Lease) Full Disclosure of Fees and Transaction Yes Yes No Costs Complete Reporting Transparency Yes Yes No Full Disclosure of Terms of Purchase & Yes Yes No Risk Factors Professional Asset Management Yes Yes Yes Master Lease Default Remedies Yes Yes No IRS Opinion for Rev Proc 2002-22 Yes Yes Yes IRS Opinion for Rev Proc 2004-86 Yes Yes Yes Property Management Conflict Yes No Yes Compliance with IRC Section 1031 Yes Yes Yes Downside Protection No No No Investor Control of Management Yes Yes No Debt (Non-recourse) with Unanimous Yes Yes Yes Consent Accredited Investor Status Required Yes No No Highly Regulated Sales Process Yes No No   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 61
  • 62. The Omnibus Budget Reconciliation Act of 1993 in the  U.S. created Umbrella Partnership REITs (“UPREITs”) As  opposed to a traditional REIT where real estate was  directly owned, in an UPREIT structure, a REIT could own  a controlling interest in an operating partnership (“OP”)  that owned the real estate.    This structure allows property owners to benefit from tax  deferrals when exchanging property interest for units in  an OP because an exchange of property interests for OP  units will generally not represent a sale for tax purposes.              The units of OP could later be converted to REIT shares (a  taxable event) when the tax benefits of such conversion  were the greatest, thus deferring capital gains tax.                  Section 721 allows an investor to actually contribute a  property into a Partnership.   In exchange, the investor receives OP shares which are  then converted to REIT shares.  Please note, that once an investor receives REIT shares,  they are securities, and follow the same regulations as  such. Also, you cannot do any further exchanges with this  type of vehicle.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 62
  • 63.  Pay no capital gains tax or depreciation recapture tax   Upgrade property holdings into institutional quality real estate   Eliminate “hands‐on” property management responsibilities   Diversified among various properties across the country   Competitive monthly/quarterly cash flow distributions   No monthly mortgage obligations due to “non‐recourse financing”   Removes or minimizes real estate holdings from taxable estate    Capital gains tax is forgiven or “stepped up” at the death of investor   “OP” units may be transferable, divisible or gifted   “OP” units may become liquid assets upon conversion    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 63
  • 64. Section 1031 classifies an investment in an Oil  and Gas Production working interest and  Royalty Interest as "like‐kind" for 1031  exchanges. A working interest is a leasehold  interest which allows the lessee the right to  search for and produce Oil and Gas on a parcel  of land and receive a portion of the proceeds of  the Oil & Gas produced. Each fractional owner  of an offering has the same rights as a single  owner and can subdivide or offer for sale their  ownership interest at any time on the open  market.   Liquidity  There is an active secondary market for  established Oil and Gas Production to sell  directly to investors or by auctions specializing  in Oil and Gas Production based on projected  production and the commodity prices.    Life of Production   Long term projected production with proved  reserves supported by qualified third party  reports.    Annual Return  Average payout of 15% to 18% per annum over  the term. This payment must be considered as  return of investment as well as return on  investment as the future value of the  investment will be zero when the production is  completed.  Tax Treatment    Income is eligible for tax free depletion allowance of approximately 15% which is not charged back upon the future  sale or 1031 exchange of the investors "fractional interest".  Diversification  Long term management free investment with secure cash flow with a wholly‐owned interest with the investor  controlling the timing and exit strategy.   Valuation  There are no drilling risks in Oil and Gas Production. Investments are valued on the amount of potential production and  the price of the commodity. Prices will increase and decrease and therefore payouts will vary. Over the long term  growth should provide an ideal inflation hedge.    International  Unlike real estate Oil & Gas is a Global commodity that is not solely dependent on the US economy and interest rates.      Closing  Quick and economic closing.  © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 64
  • 65. One of the many advantages of O&G is that, unlike buying a building, an energy asset  purchase can often be tailored to the exact valuation required for your exchange.  In  addition, many energy replacement property options offer a much lower minimum  investment requirement than many traditional real estate or Tenant In Common (TIC)  investments.   Under the provisions of Section 1031, oil and gas assets are considered "like kind" for  all of the following types of real property: commercial properties, mines and quarries,  multi‐family dwellings, residential rental properties, restaurants, timber and  timberland, warehouses and undeveloped land. Thus, oil and gas properties are often  used as replacement property for real estate and other investments to defer capital  gains.      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 65
  • 66. When someone is selling a business, professional practice or real estate, many individuals  in these and similar financial situations would like to liquidate their investment without  having to recognize the entire profit as taxable income in the year of the sale. Instead of  taking a lump sum, the seller can now design a stream of income to meet his or her  individual needs.   By making the sale and having part of the proceeds payable over  time, the seller can use  the payment proceeds as a source of income and may be able to recognize the taxable gain  as the installment payments are received or deemed received.  Enables a 1031 Rescue – in the event a seller is unable to identify suitable replacement  property for their 1031 exchange, a structured sale can be executed as a backup plan prior  to the close of escrow.   However, this option is only available if the original sales contract contained wording  allowing for the possibility of a structured sale, and if the structured sales contracts are  signed before the close of escrow. (As a precaution, every sales contract should include  such wording. Contact us for proper wording to include this possibility in your sales  contract.)      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 66
  • 67. Using a Structured Sale for Real Estate Transactions A “structured sale” is a tax deferral strategy for sellers of real estate. It is an improved version of traditional  “installment sales.” It allows the seller to take advantage of tax benefits and income security that were not  previously available.  In a structured sale the seller is allowed to spread their capital gains tax liability over a  span of years, while receiving guaranteed payments.  Benefits   Defer capital gains taxes to the year you receive payments    Earn pre‐tax guaranteed rate of return on principal    Set up payment stream to your liking    Payments guaranteed by ALLSTATE   Structured Sales Examples:  Home owner sells their residence for a large gain   Homeowner sells house for $2,000,000. Original purchase price was $500,000.  After a $500,000 exclusion,  they are left with a $1,000,000 gain.  Instead of incurring a large capital gains tax at the time of sale, the  seller elects to set up a guaranteed stream of income.  The seller now can structure all or a portion of the  remaining $1,000,000 and only pay taxes as they receive payments.  This is perfect for supplementing  retirement.   Clients selling an income property    Client wants to get out of the “landlord” business but requires the steady stream of income that the  tenants provide.  By using a structured sale, the owner can set‐up his structure to mirror his former  income, all the while deferring his capital gains.  © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 67
  • 68. Investor that is not interested in 1031 exchanges and just wants to get out of the market  For those clients who do not want to utilize the 1031 option, a structured sale is the perfect  alternative. Like a 1031 exchange, a structured sale will defer capital gains tax, but the  investment is an annuity, not a “like‐kind” property exchange.   Farmer selling his land to developer  Many farmers are hesitant to sell their land to a developer because of huge capital gains liability  and uncertainty about how to invest the proceeds. Structuring a portion of the transaction can  be the “little extra” that makes the deal happen. A guaranteed income stream, resulting in  continuation of income and deferral of capital gains are all potential benefits to the farmer.  Home owners looking to down‐size their residence   Many homeowners sell their property and downsize in order to take a profit, retire, or re‐locate  to a less expensive market. They can structure their profit to match their mortgage on their new  home and defer capital gains.  If they are retiring, structure plans can be set up to pay a  guaranteed income for the rest of their life.    A structured sale should always be identified up‐front in the Exchange Agreement as an  alternate strategy.   A structured sale can also be used to arrange payments for any proceeds of the sale that are  not used to purchase replacement property (boot). This will allow full tax deferral at the time  of the Exchange!      © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 68
  • 69. Selling a business can be a harrowing experience. Often times, sellers have worked their entire  professional career in building their businesses. In many cases, these business assets represent the  largest portion of your client’s financial assets.  Business buyers invariably will seek owner financing when negotiating terms on a potential business  purchase. While owner financing can assist in closing the deal, there are inherent risks associated with  carrying paper on a business. Namely, if the buyer should default, then the income stream stops and  the seller then gets his business back.  In most cases, this is the last thing a seller wants.  Typically, when a seller is asked to carry paper, an installment sale is set up. As discussed, this can be  risky business. A much safer alternative is to set up a structured sale whereby the seller is guaranteed  his payments regardless of the future outcome of the business.   Structured sales also provide an exchange vehicle for those business owners who want to exit the real  estate class in their portfolios, while providing a steady, management free income stream for the rest  of their lives.  Note that once a client exchanges into a structured sale, he cannot exchange again!    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 69
  • 70. Assuming the assets being sold qualify for reporting on the installment  method, here's how the process would typically work:   1. The seller enters into an installment sale agreement under which the buyer  promises to make periodic payments for a stated number of years. The seller  is NOT agreeing to take note from the buyer, rather delay his receipt of cash,  and to  defer capital gains  2. The buyer assigns his or her periodic payment obligations to an assignment  company.   3. The assignment company funds the payment obligation by purchasing an  annuity from an insurance company.  4. The insurance company begins making the payments to the seller as agreed to  under the terms of the sale and issues an agreement to pay on the  performance of the assignment company.       © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 70
  • 71. How Do You Summarize 66 Pages?       Section 1031 is an interest free loan from the government.  Section 1031 is used in less than 10% of the transactions that it should be!  Accounting Professionals owe it to their clients to understand this powerful tool!  Section 1031 is about Relocation and Reallocation of assets without paying capital gains tax!  Any real property can be exchanged for any other real property!  Section 1031 can be used to dramatically increase the value of holdings by leveraging Uncle Sam’s money.  Ask the 4 Questions: 1. What’cha got? 2. Howd’ya get it? 3. What else ‘ya got? 4. What’cha want?  Nearly every taxpaying entity qualifies for a Section 1031 Exchange!  Personal property can also be Exchanged. “Like-kind” is literal!  There are replacement options available for Section 1031, understand them! o Tenants-In-Common - Management free real estate investments in Grade A properties o UPREIT - Exchange into a real estate investment trust. o Oil & Gas - A timely alternative to owning real-estate with the same benefits and flexibility. o Structured Sales - An annuity based “paycheck” for failed exchanges and business transfers.       © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 71
  • 72. Section 1031 Glossary  Section 1031 Exchange   This very simply is a Section 1031 Tax Deferral which permits taxpayers to reinvest the proceeds from the sale of  property held for investment or business purposes into another investment or business property, and defer capital  gains tax that would otherwise be due on the initial sale.   Adjusted Basis   The original basis plus any improvement costs minus the full depreciation on the property.   Agreement for Transfer   Purchase agreement, offer and acceptance, sales agreement, earnest money agreement, real estate contract or  other contract contemplating the purchase or sale of real property.  Boot   This is the property the taxpayer receives in the exchange which does not qualify as “like kind" property. Cash  proceeds are the most common form of boot and a boot is subject to taxation. There is also the concept of  “Mortgage Boot” which is the net relief of indebtedness, and is also subject to taxation.   Capital Gain   The taxpayer pays tax at capital gains rates (after the recapture of accumulated depreciation since 5‐1‐97) on the  net difference in value between the Relinquished Property less selling costs and the Replacement Property plus  selling costs. If the value of the new property exceeds the value of the old property, there is no tax due, provided  all of the funds coming from the sale of the old property are administrated by a Qualified Intermediary and the  rules of Section 1031 are followed.  Construction Section 1031 Exchange   You may purchase Replacement Property that is not yet built. In the case of real estate, the value of the land and  improvements on the Replacement Property must equal to or exceed the value of the Relinquished Property; the  improvements do not have to be completed prior to the expiration of the 180 days, nor does there have to be a  Certificate of Occupancy issued.   However, in the case of personal property, the value of the new property must equal or exceed the value of the  old property and the improvements must be complete and the property placed in service by the 180th day.  Constructive Receipt   This is a term that refers to the Section 1031 Exchangor or other disqualified persons having unrestricted control of  the funds from the property sold and Constructive Receipt will invalidate a tax deferred Section 1031 exchange.   Contract Section 1031 Exchange   A "Contract Exchange" is the tax‐deferred exchange of: The Buyer’s ownership in a Sales Contract on real property,  for different real property, or for a contract or option on different real property; or the Option Holder’s exchange  of an Option to purchase real property, for different real property, or for an option or contract on different real  property. Essentially, a "contract exchange" is a Section 1031 exchange of an open option to purchase, or an open  Sales Contract, rather than a Section 1031 exchange of the underlying real estate itself.   Cooperation Clause   A clause that is added to the purchase on sales agreement requiring the person who is not the Exchangor to use  their best efforts to assist the Exchangor in consummating a Section 1031 tax deferred exchange.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 72
  • 73. Exchange Accommodation Titleholder  The Exchange Accommodation Titleholder "EAT" is a specially formed entity used to hold title to one of the  properties during a Construction Exchange or a Reverse Exchange.   Exchangor   The actual owner of the investment property looking to make a tax deferred exchange. Unfortunately an  Exchangor cannot be an owner that wishes to defer capital gains tax on a second home. See "like kind" property  definition.   Exchange Funds Account a.k.a. the Qualified Escrow Account   The account established by the qualified intermediary (QI) to hold the exchange funds.  Exchange Period   A 180 day window in which the Exchangor has to complete a tax deferred exchange. During the Exchange Period  there is a 45 day Identification Period in which the Exchangor must identify which property or properties that will  be purchased. Both time periods begin on the day of the sale of the Relinquished Property.  The Fair Market Value   This is the likely selling price as defined by the market at a specific point in time.  Forward Delayed Exchange   A type of exchange which occurs when a property is sold "Relinquished Property" and another property is  purchased "Replacement Property" within 180 days following the sale of the Relinquished Property.   Identification Period   The time period that begins upon the "close of escrow" of the Relinquished Property. During this 45‐day period,  the Section 1031 Exchangor must identify the Replacement Property in order to continue with the Section 1031  exchange transaction.   Identification Letter   An Identification Letter form is used to identify potential Replacement property or properties  which is sent to the  Qualified Intermediary within 45 days of closing of the “Relinquished Property” to be placed into the client’s file.  One of three identification rules must be followed, see Three Property; 200%; and 95% rules below.  IRS Section 1031 Tax Code   Internal revenue code Section 1031.  "Like‐Kind" Property    "Like kind" real estate property is basically any real estate under US state law that is NOT your personal residence  or NOT a second home, and NOT property you deal in.  The Napkin Rule   You must buy a Replacement Property of equal or greater value to the Relinquished Property in order to  completely defer the applicable capital gains tax. If you purchase a property of lesser value, you will be responsible  for any tax on the difference. You must use all the cash proceeds from the sale on your purchase in order to  completely defer the applicable capital gains tax. If you don’t use all your proceeds on the purchase, you will be  responsible for any tax on the difference.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 73
  • 74.   Personal Property   Any property belonging to the Section 1031 Exchangor that is non real estate related.   Qualified Escrow Account  The account established by the Qualified Intermediary (QI) to hold the exchange funds.  Qualified Intermediary (QI)  The Intermediary is also known as, QI, Accommodator, Facilitator and Qualified Escrow Holder. A party, not  otherwise disqualified, that helps to facilitate the exchange and holds funds in escrow.  Real Estate Exchange   A type of Exchange of real property for real property. All types of real property are "like kind" for other real  property, including vacant land, residential, commercial, and even long term leases in excess of 30 years (counting  options to renew).   Relinquished Property   The original property being sold by the taxpayer when executing a Section 1031 exchange.  Replacement Property   Is the new property being acquired by the taxpayer when executing a Section 1031 exchange.   Reverse Exchange  This is the type of exchange in which the Replacement Property is purchased before the sale of the Relinquished  Property. Reverse Exchanges take two forms; see Case #2 and Case #5 in the handbook’s text.  Rules of Identification   The guidelines that must be followed when making a Section 1031 tax deferred exchange, such as the 3 Property  Rule, 200% Rule, and 95% Rule.  Settlement Agent   Definitions include: Title agent, closing officer, escrow officer, settlement officer, closing agent, closing attorney,  settlement attorney.  Tax Deferred Exchange   The procedure outlined under IRS Code Section 1031 involving a series of rules and regulations that must be met in  order to take full advantage of deferring capital gains tax on the sale of investment real estate or certain types of  personal property. Section 1031 tax‐deferred exchanges are also commonly known as: Starker exchanges, delayed  exchanges, like‐kind exchanges, 1031 exchanges, Section 1031 exchanges, tax‐free exchanges, nontaxable  exchanges, real estate exchanges, real property exchanges. Though all of these terms refer to the same thing, the  most typical term used today is the Section 1031 Exchange.   Tenancy In Common (TIC)   A fractional or partial ownership interest in a piece of property, rather than owning the entire piece of property.  Three Property Rule   The Exchangor may identify up to 3 properties, without regard to their value.    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 74
  • 75. The 200% Rule   The Section 1031 Exchangor may identify more than three properties, provided their combined fair market value  does not exceed 200% of value of the Relinquished Property.  The 95% Percent Rule   The Section 1031 Exchangor may identify any number of properties, without regard to their value, provided the  Exchangor acquires 95% of the fair market value of the properties identified.   © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 75
  • 76.   Section 1031 Critical Dates Chart    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 76
  • 77. Section 1031 Critical Dates Chart    © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 77
  • 78. Section 1031 Critical Dates Chart                                © 2009 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes only and do not constitute tax, accounting, legal or investment advice. 78