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  • Politicians Target 1031 Exchanges

    As many have reported, Presidential candidate Joe Biden announced on Tuesday, July 21st that he plans to raise cash for childcare and elderly services by revamping the rules for 1031 exchanges of real property to limit the tax deferral opportunity to taxpayers with annual incomes of less than $400,000 per year. Targeting 1031 exchanges such as what Biden proposes is not new. Various administrations of both parties have attempted for years to limit the extent of 1031 exchanges or repeal the provision to raise revenue for other programs. Ultimately those attempts have failed when, upon further consideration, they realized that they would have essentially jettisoned a tax provision that is not a “loophole” but was made a part of the Internal Revenue Code in 1921 because it embodied good tax policy and directly influenced economic growth. There were sound reasons this concept was put into the Tax Code nearly 100 years ago. Those policy considerations are true now more than ever.
    Why 1031 exchanges are important
    The reasons for Section 1031 exchanges have become even more important in the tough economic times created by the current pandemic. Repeal or limitation of 1031 exchanges would only run counter to our shared goal of pulling the Country out of current economic doldrums. The https://www.1031taxreform.com/ling-petrova/”>empirical data amassed by diverse groups in the real estate industry is overwhelming that real estate transactions and specifically the ability to defer capital gains by reinvesting in business use or investment property is one of the strongest economic drivers in our country. The temptation to use the dramatic limitation of Section 1031 is shortsighted when viewed in the context of the effect on many other persons, industries and taxing entities that benefit from the frequent transfer of real estate ownership.
    1031 exchange impacts Main Street America
    In addition, contrary to the often used refrain that rich persons or big real estate developers are the main beneficiaries of 1031 exchanges, the fact is that the bulk of real estate exchanges done in this country are in the $500,000 range and many times less than that. In those situations where the exchange value is higher, in situations involving family held Main Street businesses, farms, ranches and other properties, the value being exchanged represents sometimes multi-generational blood, sweat and tears expended in saving up a nest egg that can be used to improve the taxpayers’ properties and quality of life.
    1031 exchanges strongly influence economic growth
    Biden stated that he wants to limit 1031 exchanges so he can use the revenue gained to improve child care and care for the elderly. However, to that point, owners of elder care facilities and child care facilities have regularly used 1031 exchanges to shed themselves of an outmoded facility and upgrade into facilities that better serve the children and elderly folks in their charge. As prior administrations ultimately concluded, when considering the overall impact, it does not make good business sense to overly limit an investment tool that benefits all Americans, spanning all economic strata and demographics, and is one of the most powerful economic drivers this country has.

  • Politicians Target 1031 Exchanges

    As many have reported, Presidential candidate Joe Biden announced on Tuesday, July 21st that he plans to raise cash for childcare and elderly services by revamping the rules for 1031 exchanges of real property to limit the tax deferral opportunity to taxpayers with annual incomes of less than $400,000 per year. Targeting 1031 exchanges such as what Biden proposes is not new. Various administrations of both parties have attempted for years to limit the extent of 1031 exchanges or repeal the provision to raise revenue for other programs. Ultimately those attempts have failed when, upon further consideration, they realized that they would have essentially jettisoned a tax provision that is not a “loophole” but was made a part of the Internal Revenue Code in 1921 because it embodied good tax policy and directly influenced economic growth. There were sound reasons this concept was put into the Tax Code nearly 100 years ago. Those policy considerations are true now more than ever.
    Why 1031 exchanges are important
    The reasons for Section 1031 exchanges have become even more important in the tough economic times created by the current pandemic. Repeal or limitation of 1031 exchanges would only run counter to our shared goal of pulling the Country out of current economic doldrums. The https://www.1031taxreform.com/ling-petrova/”>empirical data amassed by diverse groups in the real estate industry is overwhelming that real estate transactions and specifically the ability to defer capital gains by reinvesting in business use or investment property is one of the strongest economic drivers in our country. The temptation to use the dramatic limitation of Section 1031 is shortsighted when viewed in the context of the effect on many other persons, industries and taxing entities that benefit from the frequent transfer of real estate ownership.
    1031 exchange impacts Main Street America
    In addition, contrary to the often used refrain that rich persons or big real estate developers are the main beneficiaries of 1031 exchanges, the fact is that the bulk of real estate exchanges done in this country are in the $500,000 range and many times less than that. In those situations where the exchange value is higher, in situations involving family held Main Street businesses, farms, ranches and other properties, the value being exchanged represents sometimes multi-generational blood, sweat and tears expended in saving up a nest egg that can be used to improve the taxpayers’ properties and quality of life.
    1031 exchanges strongly influence economic growth
    Biden stated that he wants to limit 1031 exchanges so he can use the revenue gained to improve child care and care for the elderly. However, to that point, owners of elder care facilities and child care facilities have regularly used 1031 exchanges to shed themselves of an outmoded facility and upgrade into facilities that better serve the children and elderly folks in their charge. As prior administrations ultimately concluded, when considering the overall impact, it does not make good business sense to overly limit an investment tool that benefits all Americans, spanning all economic strata and demographics, and is one of the most powerful economic drivers this country has.

  • Politicians Target 1031 Exchanges

    As many have reported, Presidential candidate Joe Biden announced on Tuesday, July 21st that he plans to raise cash for childcare and elderly services by revamping the rules for 1031 exchanges of real property to limit the tax deferral opportunity to taxpayers with annual incomes of less than $400,000 per year. Targeting 1031 exchanges such as what Biden proposes is not new. Various administrations of both parties have attempted for years to limit the extent of 1031 exchanges or repeal the provision to raise revenue for other programs. Ultimately those attempts have failed when, upon further consideration, they realized that they would have essentially jettisoned a tax provision that is not a “loophole” but was made a part of the Internal Revenue Code in 1921 because it embodied good tax policy and directly influenced economic growth. There were sound reasons this concept was put into the Tax Code nearly 100 years ago. Those policy considerations are true now more than ever.
    Why 1031 exchanges are important
    The reasons for Section 1031 exchanges have become even more important in the tough economic times created by the current pandemic. Repeal or limitation of 1031 exchanges would only run counter to our shared goal of pulling the Country out of current economic doldrums. The https://www.1031taxreform.com/ling-petrova/”>empirical data amassed by diverse groups in the real estate industry is overwhelming that real estate transactions and specifically the ability to defer capital gains by reinvesting in business use or investment property is one of the strongest economic drivers in our country. The temptation to use the dramatic limitation of Section 1031 is shortsighted when viewed in the context of the effect on many other persons, industries and taxing entities that benefit from the frequent transfer of real estate ownership.
    1031 exchange impacts Main Street America
    In addition, contrary to the often used refrain that rich persons or big real estate developers are the main beneficiaries of 1031 exchanges, the fact is that the bulk of real estate exchanges done in this country are in the $500,000 range and many times less than that. In those situations where the exchange value is higher, in situations involving family held Main Street businesses, farms, ranches and other properties, the value being exchanged represents sometimes multi-generational blood, sweat and tears expended in saving up a nest egg that can be used to improve the taxpayers’ properties and quality of life.
    1031 exchanges strongly influence economic growth
    Biden stated that he wants to limit 1031 exchanges so he can use the revenue gained to improve child care and care for the elderly. However, to that point, owners of elder care facilities and child care facilities have regularly used 1031 exchanges to shed themselves of an outmoded facility and upgrade into facilities that better serve the children and elderly folks in their charge. As prior administrations ultimately concluded, when considering the overall impact, it does not make good business sense to overly limit an investment tool that benefits all Americans, spanning all economic strata and demographics, and is one of the most powerful economic drivers this country has.

  • Politicians Target 1031 Exchanges

    As many have reported, Presidential candidate Joe Biden announced on Tuesday, July 21st that he plans to raise cash for childcare and elderly services by revamping the rules for 1031 exchanges of real property to limit the tax deferral opportunity to taxpayers with annual incomes of less than $400,000 per year. Targeting 1031 exchanges such as what Biden proposes is not new. Various administrations of both parties have attempted for years to limit the extent of 1031 exchanges or repeal the provision to raise revenue for other programs. Ultimately those attempts have failed when, upon further consideration, they realized that they would have essentially jettisoned a tax provision that is not a “loophole” but was made a part of the Internal Revenue Code in 1921 because it embodied good tax policy and directly influenced economic growth. There were sound reasons this concept was put into the Tax Code nearly 100 years ago. Those policy considerations are true now more than ever.
    Why 1031 exchanges are important
    The reasons for Section 1031 exchanges have become even more important in the tough economic times created by the current pandemic. Repeal or limitation of 1031 exchanges would only run counter to our shared goal of pulling the Country out of current economic doldrums. The https://www.1031taxreform.com/ling-petrova/”>empirical data amassed by diverse groups in the real estate industry is overwhelming that real estate transactions and specifically the ability to defer capital gains by reinvesting in business use or investment property is one of the strongest economic drivers in our country. The temptation to use the dramatic limitation of Section 1031 is shortsighted when viewed in the context of the effect on many other persons, industries and taxing entities that benefit from the frequent transfer of real estate ownership.
    1031 exchange impacts Main Street America
    In addition, contrary to the often used refrain that rich persons or big real estate developers are the main beneficiaries of 1031 exchanges, the fact is that the bulk of real estate exchanges done in this country are in the $500,000 range and many times less than that. In those situations where the exchange value is higher, in situations involving family held Main Street businesses, farms, ranches and other properties, the value being exchanged represents sometimes multi-generational blood, sweat and tears expended in saving up a nest egg that can be used to improve the taxpayers’ properties and quality of life.
    1031 exchanges strongly influence economic growth
    Biden stated that he wants to limit 1031 exchanges so he can use the revenue gained to improve child care and care for the elderly. However, to that point, owners of elder care facilities and child care facilities have regularly used 1031 exchanges to shed themselves of an outmoded facility and upgrade into facilities that better serve the children and elderly folks in their charge. As prior administrations ultimately concluded, when considering the overall impact, it does not make good business sense to overly limit an investment tool that benefits all Americans, spanning all economic strata and demographics, and is one of the most powerful economic drivers this country has.

  • Politicians Target 1031 Exchanges

    As many have reported, Presidential candidate Joe Biden announced on Tuesday, July 21st that he plans to raise cash for childcare and elderly services by revamping the rules for 1031 exchanges of real property to limit the tax deferral opportunity to taxpayers with annual incomes of less than $400,000 per year. Targeting 1031 exchanges such as what Biden proposes is not new. Various administrations of both parties have attempted for years to limit the extent of 1031 exchanges or repeal the provision to raise revenue for other programs. Ultimately those attempts have failed when, upon further consideration, they realized that they would have essentially jettisoned a tax provision that is not a “loophole” but was made a part of the Internal Revenue Code in 1921 because it embodied good tax policy and directly influenced economic growth. There were sound reasons this concept was put into the Tax Code nearly 100 years ago. Those policy considerations are true now more than ever.
    Why 1031 exchanges are important
    The reasons for Section 1031 exchanges have become even more important in the tough economic times created by the current pandemic. Repeal or limitation of 1031 exchanges would only run counter to our shared goal of pulling the Country out of current economic doldrums. The https://www.1031taxreform.com/ling-petrova/”>empirical data amassed by diverse groups in the real estate industry is overwhelming that real estate transactions and specifically the ability to defer capital gains by reinvesting in business use or investment property is one of the strongest economic drivers in our country. The temptation to use the dramatic limitation of Section 1031 is shortsighted when viewed in the context of the effect on many other persons, industries and taxing entities that benefit from the frequent transfer of real estate ownership.
    1031 exchange impacts Main Street America
    In addition, contrary to the often used refrain that rich persons or big real estate developers are the main beneficiaries of 1031 exchanges, the fact is that the bulk of real estate exchanges done in this country are in the $500,000 range and many times less than that. In those situations where the exchange value is higher, in situations involving family held Main Street businesses, farms, ranches and other properties, the value being exchanged represents sometimes multi-generational blood, sweat and tears expended in saving up a nest egg that can be used to improve the taxpayers’ properties and quality of life.
    1031 exchanges strongly influence economic growth
    Biden stated that he wants to limit 1031 exchanges so he can use the revenue gained to improve child care and care for the elderly. However, to that point, owners of elder care facilities and child care facilities have regularly used 1031 exchanges to shed themselves of an outmoded facility and upgrade into facilities that better serve the children and elderly folks in their charge. As prior administrations ultimately concluded, when considering the overall impact, it does not make good business sense to overly limit an investment tool that benefits all Americans, spanning all economic strata and demographics, and is one of the most powerful economic drivers this country has.

  • Understanding the “Like-Kind” Requirement in 1031 Exchanges

    There are many requirements to ensure for a compliant 1031 exchange. One frequently posed question by potential exchangers pertains to what property is considered “like-kind” to another property. It relates to the term “like-kind” referring to two real estate assets of a similar nature irrespective of class or quality, that (if exchanged by the rules) can be replaced without realizing any taxable gain.
    The Internal Revenue Code (IRC) Section 1031 defines like-kind property as any property held for investment or use in a trade or business. The relinquished property and the replacement must be of like-kind to qualify for exchange treatment. Put simply, both properties involved in the exchange must be for use in a trade or business, or investment purposes. So, for example, although a personal residence or a vacation home is real estate, since it is held for personal use and not for investment, it would not qualify for exchange treatment. Property held as part of a dealer’s or developer’s inventory also does not qualify.
    What is “Like-Kind”? 
    The rules provide that the words “like-kind” reference the nature or character of the property and not its class or quality. Under the Regulations, things to consider include “the respective interests in the physical properties, the nature of the title conveyed, the rights of the parties, and the duration of the interests.” Based on these provisions, like-kind is defined in the tax code quite liberally in that any real estate is like- kind to any other type of real estate. For example, whether the real estate is improved or unimproved is not significant. Many court cases and rulings have addressed the like-kind standard for real property. Regulations provide examples of like-kind real property, some of which are obvious, others less so. Below are examples of real property interests that can be exchanged for any other type of real estate:

    Strip center for multi-family rental
    Vacant lot for improved property
    Improvements on property not already owned
    Oil, gas and other mineral interests
    Water rights
    Cell tower, billboard and fiber optic cable easements
    Conservation easements

    The Regulations also require the replacement property be located within the United States and some of its territories and possessions to qualify as like-kind for property sold in the United States. For example, a taxpayer cannot use proceeds from the sale of an office building in Dallas to acquire an investment property in Mexico. While a Mexican condominium investment sounds like a great retirement plan after the extended rental period is over, it’s not going to pass muster with the IRS when it comes to Section 1031. Property located outside the United States is like-kind only to other property located outside of the United States.
    Like-Kind Requirements Takeaways

    Like-kind real estate are assets of the same nature or character, irrespective of class or quality that can be exchanged without realizing tax liability under Section 1031
    Properties must be held use in a trade or business, or investment purposes but do not need to be similar in class or quality
    Any type of real estate is like-kind to any other real estate interest
    Many non-traditional real estate interests are like-kind to conventional interests
    Properties must be in the United States and some US territories and possessions in order to qualify as like-kind to other properties in the United States

    https://cta-redirect.hubspot.com/cta/redirect/6205670/3affec8d-f739-49b… alt=”free download: understanding a like-kind exchange” class=”hs-cta-img” height=”150″ id=”hs-cta-img-3affec8d-f739-49b0-a02b-d35ffc3abed1″ src=”https://no-cache.hubspot.com/cta/default/6205670/3affec8d-f739-49b0-a02…; style=”border-width:0px;” width=”1320″ />https://js.hscta.net/cta/current.js”> hbspt.cta.load(6205670, ‘3affec8d-f739-49b0-a02b-d35ffc3abed1’, {});
     
    Be sure to discuss 1031 exchange plans with a trusted Qualified Intermediary such as Accruit. Following the like-kind requirements is just one of several rules that must be adhered to in order to complete a successful

  • Understanding the “Like-Kind” Requirement in 1031 Exchanges

    There are many requirements to ensure for a compliant 1031 exchange. One frequently posed question by potential exchangers pertains to what property is considered “like-kind” to another property. It relates to the term “like-kind” referring to two real estate assets of a similar nature irrespective of class or quality, that (if exchanged by the rules) can be replaced without realizing any taxable gain.
    The Internal Revenue Code (IRC) Section 1031 defines like-kind property as any property held for investment or use in a trade or business. The relinquished property and the replacement must be of like-kind to qualify for exchange treatment. Put simply, both properties involved in the exchange must be for use in a trade or business, or investment purposes. So, for example, although a personal residence or a vacation home is real estate, since it is held for personal use and not for investment, it would not qualify for exchange treatment. Property held as part of a dealer’s or developer’s inventory also does not qualify.
    What is “Like-Kind”? 
    The rules provide that the words “like-kind” reference the nature or character of the property and not its class or quality. Under the Regulations, things to consider include “the respective interests in the physical properties, the nature of the title conveyed, the rights of the parties, and the duration of the interests.” Based on these provisions, like-kind is defined in the tax code quite liberally in that any real estate is like- kind to any other type of real estate. For example, whether the real estate is improved or unimproved is not significant. Many court cases and rulings have addressed the like-kind standard for real property. Regulations provide examples of like-kind real property, some of which are obvious, others less so. Below are examples of real property interests that can be exchanged for any other type of real estate:

    Strip center for multi-family rental
    Vacant lot for improved property
    Improvements on property not already owned
    Oil, gas and other mineral interests
    Water rights
    Cell tower, billboard and fiber optic cable easements
    Conservation easements

    The Regulations also require the replacement property be located within the United States and some of its territories and possessions to qualify as like-kind for property sold in the United States. For example, a taxpayer cannot use proceeds from the sale of an office building in Dallas to acquire an investment property in Mexico. While a Mexican condominium investment sounds like a great retirement plan after the extended rental period is over, it’s not going to pass muster with the IRS when it comes to Section 1031. Property located outside the United States is like-kind only to other property located outside of the United States.
    Like-Kind Requirements Takeaways

    Like-kind real estate are assets of the same nature or character, irrespective of class or quality that can be exchanged without realizing tax liability under Section 1031
    Properties must be held use in a trade or business, or investment purposes but do not need to be similar in class or quality
    Any type of real estate is like-kind to any other real estate interest
    Many non-traditional real estate interests are like-kind to conventional interests
    Properties must be in the United States and some US territories and possessions in order to qualify as like-kind to other properties in the United States

    https://cta-redirect.hubspot.com/cta/redirect/6205670/3affec8d-f739-49b… alt=”free download: understanding a like-kind exchange” class=”hs-cta-img” height=”150″ id=”hs-cta-img-3affec8d-f739-49b0-a02b-d35ffc3abed1″ src=”https://no-cache.hubspot.com/cta/default/6205670/3affec8d-f739-49b0-a02…; style=”border-width:0px;” width=”1320″ />https://js.hscta.net/cta/current.js”> hbspt.cta.load(6205670, ‘3affec8d-f739-49b0-a02b-d35ffc3abed1’, {});
     
    Be sure to discuss 1031 exchange plans with a trusted Qualified Intermediary such as Accruit. Following the like-kind requirements is just one of several rules that must be adhered to in order to complete a successful

  • Understanding the “Like-Kind” Requirement in 1031 Exchanges

    There are many requirements to ensure for a compliant 1031 exchange. One frequently posed question by potential exchangers pertains to what property is considered “like-kind” to another property. It relates to the term “like-kind” referring to two real estate assets of a similar nature irrespective of class or quality, that (if exchanged by the rules) can be replaced without realizing any taxable gain.
    The Internal Revenue Code (IRC) Section 1031 defines like-kind property as any property held for investment or use in a trade or business. The relinquished property and the replacement must be of like-kind to qualify for exchange treatment. Put simply, both properties involved in the exchange must be for use in a trade or business, or investment purposes. So, for example, although a personal residence or a vacation home is real estate, since it is held for personal use and not for investment, it would not qualify for exchange treatment. Property held as part of a dealer’s or developer’s inventory also does not qualify.
    What is “Like-Kind”? 
    The rules provide that the words “like-kind” reference the nature or character of the property and not its class or quality. Under the Regulations, things to consider include “the respective interests in the physical properties, the nature of the title conveyed, the rights of the parties, and the duration of the interests.” Based on these provisions, like-kind is defined in the tax code quite liberally in that any real estate is like- kind to any other type of real estate. For example, whether the real estate is improved or unimproved is not significant. Many court cases and rulings have addressed the like-kind standard for real property. Regulations provide examples of like-kind real property, some of which are obvious, others less so. Below are examples of real property interests that can be exchanged for any other type of real estate:

    Strip center for multi-family rental
    Vacant lot for improved property
    Improvements on property not already owned
    Oil, gas and other mineral interests
    Water rights
    Cell tower, billboard and fiber optic cable easements
    Conservation easements

    The Regulations also require the replacement property be located within the United States and some of its territories and possessions to qualify as like-kind for property sold in the United States. For example, a taxpayer cannot use proceeds from the sale of an office building in Dallas to acquire an investment property in Mexico. While a Mexican condominium investment sounds like a great retirement plan after the extended rental period is over, it’s not going to pass muster with the IRS when it comes to Section 1031. Property located outside the United States is like-kind only to other property located outside of the United States.
    Like-Kind Requirements Takeaways

    Like-kind real estate are assets of the same nature or character, irrespective of class or quality that can be exchanged without realizing tax liability under Section 1031
    Properties must be held use in a trade or business, or investment purposes but do not need to be similar in class or quality
    Any type of real estate is like-kind to any other real estate interest
    Many non-traditional real estate interests are like-kind to conventional interests
    Properties must be in the United States and some US territories and possessions in order to qualify as like-kind to other properties in the United States

    https://cta-redirect.hubspot.com/cta/redirect/6205670/3affec8d-f739-49b… alt=”free download: understanding a like-kind exchange” class=”hs-cta-img” height=”150″ id=”hs-cta-img-3affec8d-f739-49b0-a02b-d35ffc3abed1″ src=”https://no-cache.hubspot.com/cta/default/6205670/3affec8d-f739-49b0-a02…; style=”border-width:0px;” width=”1320″ />https://js.hscta.net/cta/current.js”> hbspt.cta.load(6205670, ‘3affec8d-f739-49b0-a02b-d35ffc3abed1’, {});
     
    Be sure to discuss 1031 exchange plans with a trusted Qualified Intermediary such as Accruit. Following the like-kind requirements is just one of several rules that must be adhered to in order to complete a successful

  • Understanding the “Like-Kind” Requirement in 1031 Exchanges

    There are many requirements to ensure for a compliant 1031 exchange. One frequently posed question by potential exchangers pertains to what property is considered “like-kind” to another property. It relates to the term “like-kind” referring to two real estate assets of a similar nature irrespective of class or quality, that (if exchanged by the rules) can be replaced without realizing any taxable gain.
    The Internal Revenue Code (IRC) Section 1031 defines like-kind property as any property held for investment or use in a trade or business. The relinquished property and the replacement must be of like-kind to qualify for exchange treatment. Put simply, both properties involved in the exchange must be for use in a trade or business, or investment purposes. So, for example, although a personal residence or a vacation home is real estate, since it is held for personal use and not for investment, it would not qualify for exchange treatment. Property held as part of a dealer’s or developer’s inventory also does not qualify.
    What is “Like-Kind”? 
    The rules provide that the words “like-kind” reference the nature or character of the property and not its class or quality. Under the Regulations, things to consider include “the respective interests in the physical properties, the nature of the title conveyed, the rights of the parties, and the duration of the interests.” Based on these provisions, like-kind is defined in the tax code quite liberally in that any real estate is like- kind to any other type of real estate. For example, whether the real estate is improved or unimproved is not significant. Many court cases and rulings have addressed the like-kind standard for real property. Regulations provide examples of like-kind real property, some of which are obvious, others less so. Below are examples of real property interests that can be exchanged for any other type of real estate:

    Strip center for multi-family rental
    Vacant lot for improved property
    Improvements on property not already owned
    Oil, gas and other mineral interests
    Water rights
    Cell tower, billboard and fiber optic cable easements
    Conservation easements

    The Regulations also require the replacement property be located within the United States and some of its territories and possessions to qualify as like-kind for property sold in the United States. For example, a taxpayer cannot use proceeds from the sale of an office building in Dallas to acquire an investment property in Mexico. While a Mexican condominium investment sounds like a great retirement plan after the extended rental period is over, it’s not going to pass muster with the IRS when it comes to Section 1031. Property located outside the United States is like-kind only to other property located outside of the United States.
    Like-Kind Requirements Takeaways

    Like-kind real estate are assets of the same nature or character, irrespective of class or quality that can be exchanged without realizing tax liability under Section 1031
    Properties must be held use in a trade or business, or investment purposes but do not need to be similar in class or quality
    Any type of real estate is like-kind to any other real estate interest
    Many non-traditional real estate interests are like-kind to conventional interests
    Properties must be in the United States and some US territories and possessions in order to qualify as like-kind to other properties in the United States

    https://cta-redirect.hubspot.com/cta/redirect/6205670/3affec8d-f739-49b… alt=”free download: understanding a like-kind exchange” class=”hs-cta-img” height=”150″ id=”hs-cta-img-3affec8d-f739-49b0-a02b-d35ffc3abed1″ src=”https://no-cache.hubspot.com/cta/default/6205670/3affec8d-f739-49b0-a02…; style=”border-width:0px;” width=”1320″ />https://js.hscta.net/cta/current.js”> hbspt.cta.load(6205670, ‘3affec8d-f739-49b0-a02b-d35ffc3abed1’, {});
     
    Be sure to discuss 1031 exchange plans with a trusted Qualified Intermediary such as Accruit. Following the like-kind requirements is just one of several rules that must be adhered to in order to complete a successful

  • Understanding the “Like-Kind” Requirement in 1031 Exchanges

    There are many requirements to ensure for a compliant 1031 exchange. One frequently posed question by potential exchangers pertains to what property is considered “like-kind” to another property. It relates to the term “like-kind” referring to two real estate assets of a similar nature irrespective of class or quality, that (if exchanged by the rules) can be replaced without realizing any taxable gain.
    The Internal Revenue Code (IRC) Section 1031 defines like-kind property as any property held for investment or use in a trade or business. The relinquished property and the replacement must be of like-kind to qualify for exchange treatment. Put simply, both properties involved in the exchange must be for use in a trade or business, or investment purposes. So, for example, although a personal residence or a vacation home is real estate, since it is held for personal use and not for investment, it would not qualify for exchange treatment. Property held as part of a dealer’s or developer’s inventory also does not qualify.
    What is “Like-Kind”? 
    The rules provide that the words “like-kind” reference the nature or character of the property and not its class or quality. Under the Regulations, things to consider include “the respective interests in the physical properties, the nature of the title conveyed, the rights of the parties, and the duration of the interests.” Based on these provisions, like-kind is defined in the tax code quite liberally in that any real estate is like- kind to any other type of real estate. For example, whether the real estate is improved or unimproved is not significant. Many court cases and rulings have addressed the like-kind standard for real property. Regulations provide examples of like-kind real property, some of which are obvious, others less so. Below are examples of real property interests that can be exchanged for any other type of real estate:

    Strip center for multi-family rental
    Vacant lot for improved property
    Improvements on property not already owned
    Oil, gas and other mineral interests
    Water rights
    Cell tower, billboard and fiber optic cable easements
    Conservation easements

    The Regulations also require the replacement property be located within the United States and some of its territories and possessions to qualify as like-kind for property sold in the United States. For example, a taxpayer cannot use proceeds from the sale of an office building in Dallas to acquire an investment property in Mexico. While a Mexican condominium investment sounds like a great retirement plan after the extended rental period is over, it’s not going to pass muster with the IRS when it comes to Section 1031. Property located outside the United States is like-kind only to other property located outside of the United States.
    Like-Kind Requirements Takeaways

    Like-kind real estate are assets of the same nature or character, irrespective of class or quality that can be exchanged without realizing tax liability under Section 1031
    Properties must be held use in a trade or business, or investment purposes but do not need to be similar in class or quality
    Any type of real estate is like-kind to any other real estate interest
    Many non-traditional real estate interests are like-kind to conventional interests
    Properties must be in the United States and some US territories and possessions in order to qualify as like-kind to other properties in the United States

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    Be sure to discuss 1031 exchange plans with a trusted Qualified Intermediary such as Accruit. Following the like-kind requirements is just one of several rules that must be adhered to in order to complete a successful