DID YOU KNOW . . .

Did you know that taxes on high-value property can reach or exceed 35-40%? The Internal Revenue Code section 1031 affords property owners to defer/avoid capital gains taxes.

Depending upon your circumstances, there are several ways to complete an IRC compliant 1031 Exchange.

Types of 1031 Exchanges

Cash-Out with DST (Unique to Safe Harbor Asset Management, Inc.)

It is possible to create tax-free liquidity from a 1031 exchange with a Delaware Statutory Trust. However, it must be structured correctly!

The IRS (under the “Step Transaction Doctrine”) can argue that a re-finance either before or after completing an exchange is merely an effort to avoid investing “all” the proceeds from your exchange. There are strict rules that need to be followed to avoid an IRS re-characterization of the exchange.

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Deferred or Delayed Exchange

In a delayed exchange, the Relinquished Property is sold at Time 1, and after a delay of up to 180 days, the Replacement Property is acquired at Time 2.

Reverse

The reverse exchange represents an exchange in which the Exchanger locates a Replacement Property and wants to acquire it before the actual closing of the Relinquished Property. Since the Exchanger cannot purchase the Replacement and later exchange into a property that he already owns, he must find a method to acquire the Replacement Property and still maintain the integrity of the exchange.

The most common reverse exchange approach is for the Exchanger to arrange the acquisition of the Replacement Property by adding enough cash (or arranging suitable financing) to buy the new property. The title for the new property is then held by an Exchange Accommodation Titleholder (an LLC created by the Qualified Intermediary). The EAT holds title to the Replacement property until such a time within the 180 day exchange period that the Relinquished Property is sold. At that time either the Replacement Property is deeded to the Exchanger by the EAT, or the EAT itself is transferred to the Exchanger.

Improvement

In some cases, the replacement property requires new construction or significant improvements to be completed in order to make it viable for the specific purpose the Exchanger has intended for the property. Such construction or improvements can be accomplished as part of the exchange process, with payments to contractors and other suppliers being made by the Qualified Intermediary or Facilitator out of funds held in a trust account. Therefore, if the replacement property is of lesser value than the relinquished property at the time of the original transaction, the improvement or construction costs can bring the value of the replacement property up to an exchange level or value which would allow the transaction to remain completely tax-deferred. Most improvement or construction exchanges utilize an Exchange Accommodation Titleholder to hold the title to the property while the improvements are completed. This avoids a situation where the Exchanger is exchanging into property he already owns.

Who Do We Work With?

We focus on the complexities that Business Owners & Entrepreneurs face.
Our expert team of Attorneys’ and Accounting Specialists collaborate on strategies to effectively service these groups.

4 Steps in 1031 Exchanges

STEP 1

Notify a QI Prior to Closing on Your Property 

Owner/Exchanger of the investment property notifies a Qualified Intermediary (QI) prior to the close of their sale. We connect investors with one of our trusted QI’s.

STEP 2

Research Replacement Property Before The Clock Starts

This is the most difficult part of the process if searching for a traditional brick & mortar establishment. Our DST options offer smooth solutions to complete your transaction. The earlier you begin your research the better.

STEP 3

Close & ID Replacement within 45-Days

Proceeds from your sale are directly transferred to the QI. From this point you have 45-days to identify your replacement. With advance preparation we coordinate the Exchange with your QI & DST Sponsors.

STEP 4

Transfer Funds to DST Sponsor 

Funds are transferred from the QI to your DST Sponsor. The Internal Revenue Service views the taxpayer’s use of Section 1031 as a method for moving the cost basis from one qualifying property to another. Therefore your exchange must be reported to the IRS on Form 8824 with your tax return for the year in which the exchange was started.

*NEED A QUALIFIED INTERMEDIARY?

We work closely with Qualified Intermediary’s with highly specialized 1031 Exchange divisions.

Please contact us if you need any recommendations!