What is a 1031 Exchange?

A 1031 exchange is a tax deferred real estate exchange allowing owners of investment and business property to exchange their property for other like-kind property without the recognition of capital gains. The financial gain that is realized from the sale of a property is transferred to another property without federal capital gains tax at the time of sale.

How can a 1031 Exchange be of value to me?

The 1031 tax deferred treatment of capital gains is one of the best vehicles available to investors for building and preserving wealth. Self-Directed IRA and Tenant-In-Common strategies can be successfully leveraged using 1031 Exchange transactions as powerful, wealth building tools.

What are the qualifications for a 1031 Exchange?

Actual Exchange of Properties:
There must be an actual exchange of properties to qualify. Selling a property to reinvest the sales proceeds in another property will not qualify you for 1031 Exchange treatment – even if there is a simultaneous close.

Qualifying Property:
The properties exchanged must be qualifying property. Both "held for investment" and "used for trade or business" classifications qualify. Investment property includes real estate, improved or unimproved, held for investment or income producing purposes. Property used in a trade or business includes a taxpayer’s office facilities or place of business including equipment used in that trade or business.

Like-Kind Property:
The properties must be "like-kind" (of the same nature or character). Real estate must be exchanged with like-kind real estate. Real properties generally are of like-kind, regardless of whether they are improved or unimproved. Consequently, improved real estate can be exchanged for unimproved real estate and vice versa. A 100% interest in property can be exchanged for an undivided percentage interest with multiple owners and vice versa. One property can be exchanged for two or more properties and vice versa. A four-plex can be exchanged for a duplex and vice versa. Business property can be exchanged for investment property and vice versa.

Time Restrictions:
Two time restrictions are imposed by IRS Regulations on each and every 1031 Exchange. To successfully qualify for 1031 Exchange treatment - both time restrictions must be satisfied.

The first time restriction (The 45-Day Rule) requires that Replacement Property be identified (up to three possibilities can be identified) within a certain time period – 45 Days.

The second time restriction (The 180-Day Rule) requires that Replacement Property be received by the exchanger within a certain time period – 180 Days.

Except for disaster areas recognized by the IRS - there is no provision for the extension of the 180 days for any circumstances or hardship.

What assets do not qualify for a 1031 Exchange?

Section 1031 does not apply to: Stocks, Bonds, Notes, Partnership Interests, Personal Residence, Land under Development for Resale, Flip or Resale Construction, Property Purchased for Resale, Accounts Receivable, Certificates of Trust or Evidences of Indebtedness.

Who can best facilitate a 1031 Exchange?

A Qualified Intermediary acts to facilitate the tax deferred exchange of properties. Choosing your Qualified Intermediary is an important decision. In addition to knowing and understanding the IRS 1991 "safe harbor" Regulation procedures, your Qualified Intermediary "QI" must be experienced in the procedures and treatment of different real estate situations which occur in many exchange transactions. Failure to adhere to any of the exchange provisions will result in the loss of 1031 tax-free exchange status for your transaction.

How can I find out more?

The Internal Revenue Service website www.IRS.gov provides both search and Forms and Publications access to "Publication 544 Sales and Other Disposition of Assets" (PDF) and "Form 8824 Like-Kind Exchanges" (PDF)

To address specific 1031 Exchange questions or to simply find out more Contact Our Professional Service Providers.

Self-Directed IRA’s

What is a Self-Directed IRA?

The term "self-directed" specifies that you are choosing your IRA investments. There is no legal distinction between a traditional IRA and a "self-directed" IRA.

Why haven’t I heard about Self-Directed IRA’s?

Wall Street broker dealers, money managers and retirement plan providers have a vested fee and commission interest to restrict your IRA investment options to only those - stock, bond and mutual fund investments - that their firm offers. There is no vested fee or commission interest in discussing alternative investments.

How can a Self-Directed IRA be of value to me?

Self-directed IRAs can invest in real estate including commercial properties, raw land, rental properties, mobile homes, tax-liens, tax certificates, billboards, boat slips, condominiums, trust deeds and mortgages. Self-directed IRAs can also be used to invest in traditional stock, bond and mutual fund offerings.

You can also invest in the stock of a private company or a franchise with self-directed IRA funds. Entrepreneurs can use their self-directed IRAs for initial, start-up capital.

In what assets can't a Self-Directed IRA invest?

The IRS defines the following assets as excluded (consequently - you cannot invest in them)

• Collectibles (artwork, cars, antiques, rugs, metals, gems, wine, stamps, coins, etc)

• Capital Stock in an "S" Corporation

• Life Insurance Contracts

Is the process of establishing a Self-Directed IRA difficult?

No - all that's required is for an investor to make the decision to roll (or transfer) their existing retirement plan into a self-directed IRA. The investor is then free to decide from the various asset classes that the IRS allows – which will work best for their individual needs.

What types of retirement accounts can be transferred into Self-Directed IRA accounts?

IRAs, Roth IRAs, SEP IRAs, 401(k)s, 403(b)s, Qualified Annunities, Profit Sharing Plans, Educational IRAs, Keoghs, Money Purchase Plans, Government Eligible Deferred Compensation Plans

Who can best facilitate a Self-Directed IRA?

Self-Directed IRA trustees or custodians. Choosing your trustee or custodian is an important decision. Companies that specialize in the administration of self-directed accounts are usually the best option. While some companies may not offer full Trust powers and products they are streamlined to best service self-directed IRA customers at the most reasonable fee structure.

Bank and Wealth Management trustees usually provide full Trust services, powers and products (living Trusts, special needs Trusts, etc) – to their most affluent clients – typically with a higher fee structure.

How can I find out more?

The Internal Revenue Service website www.IRS.gov provides both search and Forms and Publications access to "Publication 590 Individual Retirement Arrangements (IRAs)"(PDF).

To address specific Self-Directed IRA questions or to simply find out more Contact Our Professional Service Providers.

Tenant-in-Common

What is a Tenant-in-Common?

A tenant-in-common ("TIC" or "tenancy in common") investment structure is a form of joint (or fractional) property ownership whereby two or more (up to maximum of 35) individuals each own an undivided interest in the property.

How can a Tenant-in-Common be of value to me?

TIC's provide excellent opportunities for individual investors to own institutional quality, income producing commercial real estate and they qualify as replacement property in 1031 Exchanges.

TIC investors share in the properties tax benefits, market appreciation and "pro rata" income as their name is on the deed and they are considered a direct owner of the property.

TIC shares are not required to be of equal value and unlike partnership interests – they may be bought, sold and left to heirs independently of the approval of the other owners.

TIC's provide the opportunity for owners of a single real estate investment (with 100% exposure to a specific regional economy) to diversify (utilizing a 1031 Exchange) their real estate portfolio’s exposure with multiple property types in multiple regional economies.

TIC investments provide real estate "owner operators" the opportunity to transition (utilizing a 1031 Exchange) into real estate with onsite management - eliminating management headaches.

Who can best facilitate a Tenant-in-Common Transaction?

TIC syndicators (called "sponsors") offer TIC investments through financial planners, investment advisors and brokers. Choosing your financial planner, investment advisor or broker is an important decision. Tenant-in-common interests always consist of real estate interests, but depending on how the sponsor organizes the transaction they may also be securities.

Securitized TIC interests are typically offered through financial planners, investment advisors and securities brokers.

Real estate TIC (non-securitized) interests are typically offered through real estate professionals.

Approximately 90% of TIC interests sold are structured and sold as securities.

How can I find out more?

The Internal Revenue Service website www.IRS.gov provides both search and Forms and Publications access to "IRS guidance Revenue Procedure 2002-22" (PDF) a publication addressing TIC guidelines and structure.

To address specific Tenant-in-Common questions or to simply find out more Contact Our Professional Service Providers.