Like-Kind Exchanges: Some, Liked by the IRS, Kind to the Taxpayer Presented by: C. Talbot Nunnally, III, Esq. William V. McRae, III, Esq.
Like-Kind Exchanges: Some, Liked by the IRS, Kind to the Taxpayer Our Thanks to: Ron Raitz , President- Real Estate Exchange Services, Inc. Robert J. Waddell , Esq.
“ Gentlemen, this is a football” Vince Lombardi
I.R.C. § 1031 Exchange of Property Held for Productive Use or Investment
I.R.C. § 1031 A Brief History 1918- Income Tax Established 1921- Nonrecognition of gain or loss concept established 1979- Starker case 1984- Identification and acquisition timeframes established
I.R.C. § 1031 A Brief History 1989- Related party rules added; Foreign real property excluded 1990- 761(a) election added 1991- Treas. Reg. §1.1031 adopted 2000- Rev. Proc. 2000-37 2002- Rev. Proc. 2002-22
Debt on taxpayer’s property (if paid or otherwise satisfied)
Debt on taxpayer’s property (if assumed or taken subject to by Transferee)
except to extent of debt (on Replacement
Property) assumed by taxpayer
§ 1031- “Boot Netting” Reg. § 1.1031(d)- 2 Cash paid by Taxpayer ? New debt incurred by Taxpayer? Debt assumed or taken “subject to” by Transferee netted against debt assumed or taken subject to by Taxpayer
1031 Exchanges: Problems ? Issue: Many lenders prefer to lend to special purpose entities designed to preclude borrower from filing bankruptcy. Entity organizational documents restrict permitted activities to ownership of collateral
1031 Exchanges: Problems ? Problem: The taxpayer who enters into the exchange must be same taxpayer who receives the replacement property Problem: Taxpayer who contributes replacement property to special purpose entity immediately after an exchange faces “holding” problem
1031 Exchanges: Single Member LLCs Solution: Utilize single member LLC
1031 Exchanges Problem: What if TIMING issues threaten to ruin your client’s exchange ? Solution: The Reverse Exchange