The Power of Section 1031 for Accounting Professionals

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Powerpoint presentation for Edmund & Wheelers 4 HR. CE course for accountants.

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The Power of Section 1031 for Accounting Professionals

  1. 1. Shhhhh.Don’t tell anyone.Your clients are eligible forinterest free loans from the USand State Government……for as long as they’d like.…for as many times as they’d like.
  2. 2. Of the approximately $200 Billion in commercial realestate transactions during 2008, it is estimated that 20-25% could have benefited from Section 1031 treatment. Only 3% did.
  3. 3. What’s In It For You?• Absolutely Part of Your Fiduciary Responsibility • Tax Ramifications on the Sale of Investment/Trade or Business Property are Key• Clients Will Appreciate Your Resourcefulness• Section 1031 has wide applicability in your accounting practice • Help Your Clients strategize the sale and repurchase of their holdings. • Property portfolios may be realigned tax free.• Become Involved With Client’s Real Estate Strategy• Strengthen & Expand Your Referral Base
  4. 4. Today We Will Explore…• What Is Section 1031?• Section 1031’s Misconceptions• How To Recognize When to Use Section 1031?• Who Qualifies For an Exchange?• How to Report an Exchange• What Qualifies For an Exchange?• Real-life Examples of Our Exchanges• Alternative Exchange Strategies
  5. 5. Primary Objectives of This Course• Provide a Basic Section 1031 Education• Provide Tools & Information Enabling You to Better Serve Your Clients• Assist You In Recognizing the Strategic Applications of Section 1031 and to Explore Alternative Replacement Strategies
  6. 6. Primary Objectives of This Course• Help You to Understand How Section 1031 Integrates Into Your Client’s Overall Financial Goals & Objectives• We will Demonstrate our Ability to Become Your Section 1031 Resource in the Future
  7. 7. What Is An Exchange?• Method to sell Investment and/or Trade or Business Property and replace it with New Property that doesn’t trigger any tax.• Its essential elements are: The Client must: – Give a Deed (or a Bill of Sale); – Get a Deed (or a Bill of Sale); and – Don’t handle Cash
  8. 8. The Five Critical Elements1. Intent2. Form and Documentation3. Control of Funds4. Like-Kind Properties5. Time Limits
  9. 9. The Regulation - Section 1.1031(k)-1 “A deferred exchange is defined as an exchange in which, pursuant to an agreement, the taxpayer transfers property held for productive use in a trade or business or for investment (the ‘relinquished property’) and subsequently receives QI property to be held either for productive use in a trade or business or for investment (the ‘replacement property’).”
  10. 10. Section 1031(a)(1)“No gain or loss shall be recognized on theexchange of property held for productive use in trade orbusiness or for investment if such property is exchangedsolely for property of like kind which is held either forproductive use in a trade or business or for investment.” Section 1031 Works ONLY with Investment/Trade or Business Property YOU MUST PROVE INTENT!
  11. 11. Exceptions to Section 1031 (Sec.1031(a)-(2))• 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 interest• F. Choses in action (litigation rights)
  12. 12. What is Investment Purpose?• Investment is the passive holding of property for more than a temporary period with the expectation of appreciation• Real estate (even if unproductive) held by a non dealer for future use or increment in value is held for investment and not primarily for sale (Reg. 1.1031(a)-1(b))• Thus property held for sale in the immediate future is not held for investment
  13. 13. What are the benefits of an Exchange?• Full capital gains tax deferral (Exchange goes Even or Up)• Relocation of investment• Change in investment type• Diversification of investment• Planning of investment• Solve problem of joint ownership• Increase cash flow
  14. 14. Three Essential Elements:• The properties must be exchanged (not sold)• Both the “Relinquished Property” and the “Replacement Property” must be held by the same taxpayer for investment or productive use (“Identity of Taxpayer Rule”)• The properties must be “Like-Kind” with one another – Real property for real property – Personal property for personal property – Matching in value or the new property more expensive – “Boot” results when the old property is more expensive
  15. 15. Replacement Property Rules @ Reg 1.1031(k)-1-(c)(4) • The Three Property Rule - The Exchangor may identify up to three (3) properties, without regard to value; or • The 200% Rule - The Exchangor may identify more than three properties, provided their combined fair market values does not exceed 200% of the value of the Relinquished Property; or • The 95% Rule - The Exchangor may identify any number of properties, provided the Exchangor acquires 95% of those properties (by value). • Properties received before the 45th day do not have to be identified, but must appear on one of the ID’s after Day 45.
  16. 16. Like-Kind Requirement:• The term “like-kind” refers to the nature or character of the property and not to its grade or quality (Reg 1.1031(a)-1(2) (b))• Real property cannot be exchanged for personal property (Reg 1.1031(a)-1(2)(b))• Qualifying personal property can be exchanged for property of a similar character (NAICS (formerly SIC) Codes must match; the Code must fall within Sector 31, 32 or 33 of NAICS; last digit cannot be a 9.) (Regs 1.1031(a)-2, et seq.)
  17. 17. Examples of Like-kind• Improved real property for Unimproved real property (Reg 1.1031(a)-1(2)(b))• Lease for >30 years (Reg 1.1031(a)-1(2)(c))• Partial interest for a whole interest• One property for more than one property and vice versa
  18. 18. Apartments Single Family Dwelling Like - Kind Condos Land Commercial Development
  19. 19. What is Like Kind?ANY REAL PROPERTY IS LIKE KIND WITH ANY OTHER REALPROPERTY…. Single Family Dwelling Apartment Building
  20. 20. What is Like Kind?ANY REAL PROPERTY IS LIKE KIND WITH ANY OTHER REALPROPERTY…. Multi-family Dwelling Single Family Dwelling
  21. 21. What is Like Kind?ANY REAL PROPERTY IS LIKE KIND WITH ANY OTHER REALPROPERTY…. Land Development Single Family Dwelling
  22. 22. What is Like Kind?ANY REAL PROPERTY IS LIKE KIND WITH ANY OTHER REALPROPERTY…. Single Family Dwelling Commercial Property
  23. 23. Personal Property (Regs 1.1031(a)-2, et seq.)• Same General Asset Class or Product Code• North American Industry Classification System• Sector 31-33: Manufacturing – Examples: Construction Equipment, Well Drilling Equipment, Logging Equipment, Commercial Vessels, Commercial Laundry Equipment – See www.census.gov/naics
  24. 24. Timing is everything!• The Exchange Period begins on the transfer of the Relinquished Property – This is Day #0• Exchangor must identify qualified Replacement Property within 45 days of closing (the “Identification Period”)• Exchangor must acquire within 180 days, or due date of the tax return (counting extensions) for the tax year of the sale (the “Exchange Period”) (Reg 1.1031(k)-1(b), et seq.)• There are no extensions unless a federal disaster is declared in the vicinity of the taxpayer or the property.
  25. 25. Can Anyone Handle An Exchange?• No! It must be a “Qualified Intermediary”(QI) as defined by regulation: see Regs 1.1031(k)-1(k), et seq.• Cannot Be the Exchangor or a Relative (Sec. 267(b) or Sec. 707(b)(1))• Cannot be an Agent of the Taxpayer § One who has acted as employee, attorney, accountant, investment banker, broker or real estate agent within the past 2 years§ The QI Handles All Aspects of the Exchange and Should be Involved EARLY in the Process
  26. 26. What does the QI do? Regs 1.1031(k)-1(g)(4), et seq.• Creates Exchange Agreement; signed by Taxpayer.• Has Legal Standing as the substitute Seller of Relinquished Property and substitute Buyer of Replacement Property (Assignee Seller/Buyer).• Notice of the Assignment required to be given to Buyer and Seller, with Closing Instructions to both Settlement Agents.• Banking, Safeguarding & Delivery of Exchange Funds• Assurance of Critical Deadlines Including the 45 & 180 Day Deadlines• Final accounting for tax purposes
  27. 27. Who Qualifies for an Exchange?Owners of investment property and business property mayqualify for a Section 1031 deferral. Individuals, C Corporations,S corporations, partnerships (general or limited), limited liabilitycorporations, trusts and any other taxpaying entity may set upan exchange of business or investment properties for businessor investment properties under Section 1031.Ref - www.irs.gov
  28. 28. Does Your Situation Qualify?
  29. 29. The Five Most Common Section 1031Misconceptions 1 All 1031 Exchanges must involve swapping or trading with other property owners......
  30. 30. The Five Most Common Section 1031Misconceptions 2 It’s required that all types of 1031 exchanges must close simultaneously......
  31. 31. The Five Most Common Section 1031Misconceptions 3 "Like-kind" means purchasing the same type of property which was sold.......
  32. 32. The Five Most Common Section 1031Misconceptions 4 1031 Exchanges must be limited to 1 exchange and 1 replacement property.......
  33. 33. The Five Most Common Section 1031Misconceptions 5 A Section 1031 is NOT a path to cash.
  34. 34. What about the States?• All states but one (PA) allow a Section 1031 within or outside the state; PA taxes even in-state 1031’s• States follow the Federal rules closely.• Some states w/ income taxes (e.g. CA, ME, NJ, NY, RI, VT) require a Waiver of (state tax) Withholding• Other states w/ income taxes (MA) don’t bother• Land Gains Tax in VT: Old & New properties must be in-state; New Property takes Old Holding Period• Some states (ME, VT) have a formal Waiver; others CA, HI, NJ, NY, RI, SC) permit a Seller Affidavit.
  35. 35. IRS Form 8824 – Reporting anExchange
  36. 36. 123 Main Street, City, State; 4 Family Rental 456 Main Street, City, State; Single Family Rental 1 2 1997 Property Information 6 1 2008 & Exchange Dates 7 16 2008 11 28 2008 Related Party? YES Line 8, NO Line 12 Part II Part IIIRelated Party - Sec. 267(b) or Sec. 707(b)(1)
  37. 37. Joe Related Taxpayer Brother XXX-XX-XXXX Related Party 789 Main Street, City, State, Zip Information Must remain NO for two tax years Related Party - Sec. 267(b) or Sec. 707(b)(1)If 9 or 10 is YES, 11 C is most probable answer (attach statement)
  38. 38. Multi-assetExchanges“Boot”FMVOld basis +“New money”Eg. A buildingfor vacant land
  39. 39. What is “Boot?• If the Price + costs of the New Property is less than the Price – costs of the Old, Boot results. Boot Triggers TAX…• Boot can be avoided by exchanging even or up …The Exchange• Boot is property of an Unlike Could Still Work! Kind; Cash Boot is net cash; Mortgage Boot is less net debt.
  40. 40. What is “New Money” (Basis Additions):• The Taxpayer picks up new basis for all “New Money” that is added to the transaction.• “New money” = Net new cash + Net increase in debt• “Strike Price” = Sales price – costs• Taxpayer gets increased basis if the New property + acquisition costs = or exceeds the Strike Price
  41. 41. Exchanges that cross 2 tax years: • Reported for the year of the sale of the Old Property • July 5 + 180 days (or Nov. 17 + 45 days) = Jan. 1st • 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
  42. 42. Can a Failed Exchange be fixed? • IRS Regulations allow a sale to be rescinded within the same tax year if the parties are restored to their original positions (Rev Rule 80-58) – Un-close with the Buyer. – Re-close with the Buyer properly, using a Q.I.
  43. 43. GEF EditsSection 1031 Exchanges for Partnerships• Exchange must be at the entity level; partnership interests (or those of any entity) are not exchangeable per 1031(a)-2• Nor does the “Drop & Swap” technique work either. If a partnership asset is distributed to a partner, that person must establish a separate “holding period” in the asset before the exchange (1 year minimum; 2 years better).• IRS is now asking on Form 1065: “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?” (Question #14)
  44. 44. GEF EditsPartnerships (cont’d)4. 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.5. On Form 1065, IRS now asks the following question: “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)” Question #13
  45. 45. GEF EditsPartnerships: So what to do?6. Identify the partners who want to depart; preserve the partnership at all costs; must have at least 2 members.7. Close on the asset, but reserve out enough “boot” to allocate to the partners who want to leave; the rest of the sale is handled by the QI in the usual way.8. The departing partners get the cash and the allocated debt relief, and pay tax on these funds per their basis in the partnership.9. The remaining partners go forward and take in the like-kind Replacement Property.10. This preserves the partnership EIN #, and its holding period.
  46. 46. GEF Edits• So what to do? (cont’d)11. This leaves the answers to Questions #13 and #14 on Form 1065 “No.” The partnership would issue all of the partners K-1 returns, however, in addition to the figures for the normal partnership operations for the prior year, those that took cash or distributed debt relief would have that fact and the correct amounts stated on their K-1.
  47. 47. Break Time…
  48. 48. The Power of Section 1031 What happens when both participate in 3 typical real estate transactions… …with radically different approaches?
  49. 49. Hypothetical Example Assumptions Courtesy of Grubb & Ellis Commercial Real Estate Services
  50. 50. First Transaction - Today Courtesy of Grubb & Ellis Commercial Real Estate Services
  51. 51. Second Transaction – In 5 Years Courtesy of Grubb & Ellis Commercial Real Estate Services
  52. 52. Third Transaction – In 10 Years Courtesy of Grubb & Ellis Commercial Real Estate Services
  53. 53. Fourth Transaction – In 15 Years $361,336 $507,000 $108,400 $152,100 ($21,680) $ 0 $448,056 $659,100 $2,240 $3,296 Courtesy of Grubb & Ellis Commercial Real Estate Services
  54. 54. Summary of Wealth Building Benefits4th Transaction $448,056 $659,100Cumulative Increase 49.3% 119.7% Courtesy of Grubb & Ellis Commercial Real Estate Services
  55. 55. Summary of Increased Cash Flow At 15th Year Courtesy of Grubb & Ellis Commercial Real Estate Services
  56. 56. The After-Tax Analysis (a sale in Year 15) • Owner #1 (in Year 15) – Has Property worth $448,056; all taxes have been paid • Owner #2 (in Year 15) – Has property worth $659,100, with $136,810 tax due • Net Result (after tax): – Owner #2 has $74,234 more wealth than Owner #1, and has received $92,779 more income than Owner #1. – But why would Owner #2 ever pay the tax when s/he can exchange over & over, using THE POWER OF SECTION 1031?
  57. 57. The Most Common Exchange Types• Delayed Exchange (Regs 1.1031(k)-1, et seq.) – The client sells his property, identifies Replacement Property options within 45 days, then purchases the property(ies) within 180 days.• Reverse Exchange (Rev. Proc 2000-16 & 2004-51) – The client purchases (with a Single Purpose Entity) the Replacement Property before his current property is sold. The client then has 180 days to close on his Relinquished Property.• Build-to-Suit (Reg 1.1031(k)-1(e), et seq.) – The client wishes to purchase and improve Replacement Property(ies) with the proceeds from the sale of his Relinquished Property. This is accomplished with a Single Purpose Entity, a/k/a an Exchange Accommodation Titleholder (“EAT”).
  58. 58. Reverse Exchanges – Choice of Entity • The EAT Can Be an Individual or an Entity – Using an Individual is Very Dangerous (Liability/Bankruptcy/Death) • For Protection the Entity Should be an LLC or C-Corp LLC C-Corp Can Convey LLC Membership  Fiscal Tax Year  No Tax Filing in Could Save Transfer Taxes (Not NH) Middle of Exchange  Better Audit Trail
  59. 59. Reverse Exchanges – Transfer Taxes• Most States (Including NH) Charge 2 Transfer Taxes: • Property Conveyed to the EAT • Property Conveyed out of the EAT• ME and VT Offer a Waiver of The Second Tax• Waiver MUST be Applied For BEFORE the Second Closing• NH Collects Taxes on ALL Deeds With Few Exceptions
  60. 60. Case StudiesThe case studies outlinedare presented as arepresentation of the 5 mostcommon types of Section1031 exchanges.Please note that the casestudies have been simplifiedand several essential stepshave been omitted for clarity.Click on the case study youwould like to review.www.section1031.com
  61. 61. Case Study 1ABDC-Delayed Exchange (Existing Property)Direct Format
  62. 62. CAMPGROUND FOR SEVERAL SINGLE FAMILYRESIDENCES One campground exchanged for 16 new properties… …including 2 new campgrounds.
  63. 63. 6 PROPERTIES FOR A DOZEN CONDOMINIUMS Sold six properties to aggregate funds to buy… …over a dozen brand new condo units.
  64. 64. CONVERTING INVESTMENT PROPERTY TO PERSONALRESIDENCE Exchange for your dream home, rent it for two years… …convert it to your primary residence. Note changes in Section 121 after 1/1/09 make the non-primary residence time periods taxable.
  65. 65. ACQUIRE A RENTAL PROPERTY FOR A FAMILY MEMBER Exchange for a home for the kids… …charge Fair Market rent. ..After two (2) years, begin gifting the property. (Rev Proc 2008-16)
  66. 66. Case Study 2ACBD-Delayed/Simultaneous Exchange (Existing Property)Reverse Format - Exchange Last
  67. 67. BUYING A NEW PROPERTY BEFORE THE OLD PROPERTY SELLS Taxpayer Negotiates the Purchase of a Significant New Property… …but is unable to sell a piece of existing property in time to do the deal… …Park the New Property in an EAT; 180 more days are available to sell the Old Property and complete the Section 1031 Exchange….
  68. 68. Case Study 3ACBD-Delayed, Build-to-suit (or Improvement) ExchangeDirect Format
  69. 69. COMMERCIAL PROPERTY FOR RAW LAND WITHIMPROVEMENTS Taxpayer sells an existing commercial property… …EAT buys a vacant lot and builds a new building with the funds… …and delivers to Taxpayer as improved, within 180 days….
  70. 70. Case Study 4ACBD-Delayed/Simultaneous Build-to-suit ExchangeReverse Format - Exchange Last
  71. 71. INDUSTRY SPECIFIC BUILDING ON IDENTIFIED PROPERTY 180 Days (total) are available – Rev Proc 2000-37 EAT Builds a new building to Taxpayer’s specs, using borrowed funds… ..Taxpayer takes occupancy.. …then sells existing property.. …...And, Exchanges with the EAT to finish the transaction…
  72. 72. Case Study 5Delayed Exchange (Existing Property) Reverse Format -Exchange First
  73. 73. BUY INVESTMENT PROPERTY ABUTTING A PRIMARY RESIDENCE: Taxpayer deeds F & C rental property to EAT… ..EAT borrows equity from taxpayer or the bank.. ..Equity $$ used to Purchase abutting shore front land … …EAT sells rental property to a Buyer to pay off the debt..
  74. 74. 4 $imple QualificationQuestions…
  75. 75. 1. What’cha Got?2. Howd’ya Get It?3. What else ‘ya Got?4. What’cha Want?
  76. 76. 1. What’cha Got? – How has the property been used in the client’s hands? – Has there been personal use of the property? (Rev Proc 2008-16) – Does the property include personal property or other intangibles? – What is the Purchase Price Allocation?
  77. 77. 2. Howd’ya Get It? – As the result of a previous Exchange? – Is the property from an estate or family, or was it gifted? – How long has the property been owned? – What is the Adjusted Cost Basis?
  78. 78. 3. What else ‘ya Got? – Is there other property being sold? – Are there other property rights or easements? – Any excess land associated with their primary residence? – Does the transaction need to be bigger, smaller or done in stages? – “Find a way to make it bigger; find a way to make it smaller” Warren G. Harding
  79. 79. 4. What’cha Want? – What is the short term/long term strategy for the property? – Ideally the value should be even or up. – An important element of building wealth is the use of untaxed funds. – Diversify in type, location, quantity & quality of the Replacement Property. – In an Exchange, the adjusted cost basis shifts first, followed by the cash or debt.
  80. 80. Break Time…
  81. 81. Alternate Exchange Opportunities THERE ARE A MYRIAD OF OTHER INVESTMENT OPPORTUNITIES THAT CAN BE ACCOMPLISHED WITH AN EXCHANGE!
  82. 82. Tenants - In - CommonTENANTS-IN-COMMON (TIC’s) OFFER A STRESS-FREEOPTION TO OWN INVESTMENT GRADE REAL ESTATE Tenants-in-common Any Real Property
  83. 83. Why Use TICS in an Exchange? Courtesy of Grubb & Ellis Commercial Real Estate Services
  84. 84. Who is a Typical TIC Investor? Courtesy of Grubb & Ellis Commercial Real Estate Services
  85. 85. TIC Property Characteristics• Undivided Fractional Ownership in Real Estate• Each Owner Receives a Proportional Share of Net Revenues• Under Sponsored Structure, TIC’s are: • Grade “A” Real Estate Investments • Professionally Managed• The Result Is A Passive Ownership Courtesy of Grubb & Ellis Commercial Real Estate Services
  86. 86. Direct Ownership vs. TIC Conventional Direct Ownership 1031 Tenant-in-Common Property Exchange Property ExchangeLower returns on less desirable properties Higher returns on institutional-quality propertiesDifficult to comply with Section 1031 45 day ID Easy to comply with Section 1031 45 day ID rulesrules; Exchangor must find properties when properties are pre-identifiedDifficult to match Section 1031 exchange debt Easy to match Section 1031 exchange debt andand equity equityInvestor must negotiate and arrange loan Prearranged financingExpensive and time-consuming property Professional proven property management inmanagement place. You receive a monthly or quarterly income check.Cash flow, depreciation, and appreciation Cash flow, depreciation, and appreciation potentialpotentialAbility to use the Section 1031 exchange again Ability to use the Section 1031 exchange againAbility to refinance and distribute proceeds “tax Ability to refinance and distribute proceeds “taxfree” free”
  87. 87. Diversification Courtesy of Grubb & Ellis Commercial Real Estate Services
  88. 88. How Does it Work?1. Client sells investment property (“Relinquished Property”).2. Proceeds transferred to QI (Edmund & Wheeler, Inc.)3. Client and advisor identify potential Replacement Properties through a myriad of sources within their 45-day Identification Period.4. Client is granted a reservation.5. Client and advisor fill out necessary paperwork to close.6. Client is on title and receives a deed to the Replacement Property.7. Client assumes a % interest of non-recourse financing (1)8. Client receives a % interest of the income generated from the property.9. At the sale, the client receives a % share of any and all profits. Courtesy of Grubb & Ellis Commercial Real Estate Services
  89. 89. Case Study Courtesy of Grubb & Ellis Commercial Real Estate Services
  90. 90. Assumptions Courtesy of Grubb & Ellis Commercial Real Estate Services
  91. 91. Investment Results Courtesy of Grubb & Ellis Commercial Real Estate Services
  92. 92. Recap the Benefits
  93. 93. Umbrella Partnership Real EstateInvestment Trust (UP-REIT) Exchange! Any Real Property
  94. 94. What Is An UPREIT?• Similar to a Mutual Fund For Real Estate Investors.• Allows Exchanging Real Property Into Operating Partnership (OP) Shares of Existing REITs• REITs can convert existing properties into TICs allowing 35 ownership positions; then, under Section 721: • TICs are then converted back to REIT shares and investors then hold shares in the REIT’s entire portfolio. • Portfolio is professionally managed with 95% of the net income to investors.
  95. 95. Section 721 Exchange Overview• Instead of Selling and Exchanging, The Investor Contributes Property to a Partnership• Receives Operating Partnership (OP) units.
  96. 96. UPREIT Benefits• Transaction completed on a tax-deferred basis. If shares go to an estate the ultimate recipients will receive a stepped-up tax basis (An interest-free loan followed by tax forgiveness).• Transaction can be structured by enabling property owner to convert an interest in a specific property into a larger, more balanced portfolio held by the UPREIT.• Allows an interest in illiquid individual properties to become more easily saleable; convert real estate to shares of stock.• Convert a high-valued property into tiny, marketable pieces.
  97. 97. Oil & Gas LeasesINVESTORS CAN EXCHANGE REAL PROPERTY FORINTERESTS IN PRODUCING OIL & GAS ENTERPRISES Any Real Property
  98. 98. Oil & Gas Lease AN EXTREMELY VIABLE ALTERNATIVE FOR AN EXCHANGE.• Working and Royalty Interest• Leasehold Interest Allows the Right to Search for and Produce Oil and Gas• Fractional Owners Have the Same Rights as a Single Owner and Can subdivide or Offer for Sale on the Open Market
  99. 99. Oil & Gas Lease Characteristics • Liquidity • Active Secondary Market • Life of Production • Supported by Qualified 3rd Party Reports • Annual Return • Average 8% - 12% (+) Over Term • Tax Treatment • 15% Depletion Allowance • Valuation • Valued on the Amount of Potential Production
  100. 100. Oil & Gas Lease Benefits • Immediate Economic Closing With Predictable Cash Flow • Ability to Participate in the Future Production • Highly Liquid Individual Fractional Ownership • Diversification By Investing In One or Several Qualified Working Interests in Different Markets
  101. 101. Structured Sales (Section 453)STRUCTURED SALES ALLOW THE INVESTOR TO ARRANGE FOR A FUTURE PAYCHECK Exchange! Any Real Property
  102. 102. The Structured SaleThe Structured Sale is a method for selling appreciated assets such as realestate and businesses that allows Sellers to:•Defer capital gains taxes to future years•Collect a stream of guaranteed payments over a set number of years•Without having to trust the Buyer or to get an unwanted Balloon paymentIn Addition:•Makes the transaction safer for the Seller; guarantor is Allstate, not the Buyer•Can be combined with a Section 1031 Exchange or be used alone•Absolutely no risk of getting the old property backThis method was developed in 2005 and is becoming a sought-after methodfor tax deferral when selling a business or real estate.
  103. 103. The Structured Sale & Section 1031• Identified as an Alternative Strategy In Exchange Agreement• Gives Buyer Full Title• Can Be Used When Replacement Properties Cannot Be Identified and/or Purchased in the 45/180 Day Time Restraints• Can Be Used For Taxable “Boot”
  104. 104. The Structured Sale & Selling a Business• There is Inherent Risk Associated With a Typical Installment Sale• The Structured Sale Provides a Safe Alternative• Can Be Used in an Exchange for non “like-kind” Items like goodwill and FF&E; or• Can be used for the entire transaction amount if the client wants to exit the real estate class
  105. 105. The Structured Sale
  106. 106. How Do You Summarize 109 Slides?
  107. 107. Quickly!
  108. 108. Section 1031 is thesame as an interest- free loan from the Government
  109. 109. Section 1031 is used in less than 10% of the transactions that it should be!
  110. 110. AccountingProfessionals owe it to their clients to understand this powerful tool!
  111. 111. Section 1031 is about Relocation andReallocation of Assetswithout Paying Capital Gains!!!
  112. 112. Any U.S. Real PropertyCan Be Exchanged For Any Other U.S. Real Property!
  113. 113. Section 1031 can be used to dramatically increase the value ofholdings by leveragingUncle Sam’s money.
  114. 114. Ask the 4 Questions 1.What’cha Got 2.Howd’ya Get It?3.What Else ‘ya Got? 4.What’cha Want?
  115. 115. Every tax-paying entityqualifies for a Section 1031 Exchange!
  116. 116. Personal property can also be Exchanged. “Like-kind” is literal!
  117. 117. There are replacement options available for Section 1031 Understand Them!
  118. 118. Tenants-In-Common Management-Free Real EstateInvestments in Grade A Properties
  119. 119. UPREITExchange into a Real Estate Investment Trust
  120. 120. Oil & Gas A timely alternative toowning real estate withthe same benefits and flexibility.
  121. 121. Structured Sales An annuity based“Paycheck” for failed exchanges and business transfers.
  122. 122. Also…with Section 1031 alone:• Must employ a Qualified Intermediary• Time limits of 45 and 180 days• Properties must be “Like-Kind”• Business or Investment Purpose• Relinquished and Replacement Properties held by same taxpayer• Exchanges can be done either forward (Cases #1 & #3) or reverse (Cases #2, #4 & #5)
  123. 123. If you have questions... If your clients have questions… If you want to strategize…..
  124. 124. …Contact UsFor over 27 Years Edmund & Wheeler has helpedclients to defer $Millions…
  125. 125. Congratulations!You are now a member of the elite, theproud, the educated….Edmund & Wheeler, Inc.Alumni AssociationMembership has it’s benefits! www.section1031.com/alumni
  126. 126. For over 27 Years Edmund & Wheeler has helpedclients to defer $Millions……we want to earn thedistinction of being yourSection 1031 resource.603-444-0020www.Section1031.com
  127. 127. Thank you for your valuable time!!!

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