Development

Blog

  • Qualified Intermediaries Celebrate 25 Years of Section 1031 Like-Kind Exchange Compliance and Taxpayer Protections

    Professional QIs Are Central to 1031 Exchanges and Help a Wide Variety of Asset Owners
    Las Vegas, Nevada (September 15, 2016)
    The U.S. Treasury rules giving rise to the like-kind exchange “Qualified Intermediary” turn 25 this year. Established by Treasury safe harbor regulations in 1991, professional Qualified Intermediaries (QIs) promote compliance with the law and make the benefits of like-kind exchanges, also known as 1031 exchanges, accessible to business and property owners nationwide.
    QIs act as independent third-party principals in 1031 exchange transactions. “QIs are equal parts facilitator, educator, and compliance officer,” said Margo McDonnell, president of 1031 CORP., a Philadelphia-based Qualified Intermediary, and outgoing president of the Federation of Exchange Accommodators (FEA), the national 1031 exchange trade association for QIs. “Taxpayers benefit from the guidance Qualified Intermediaries provide. The strict requirement of Internal Revenue Code Section 1031 must be met for an exchange to be approved by the IRS. Without the guidance of Qualified Intermediaries, investors would see many more like-kind exchanges disqualified, negatively affecting business reinvestment and job growth. This would also increase the risk of abuse,” said McDonnell, speaking from the FEA 2016 Annual Conference in Las Vegas on September 14, 2016.
    FEA member Qualified Intermediaries help taxpayers of all sizes efficiently redeploy capital across the country, leading to job creating spending in local communities. Professional QIs simplify the exchange transaction for all parties, including the asset owners seeking 1031 tax deferral as well as their tax/legal advisors, the closing officer preparing the closing statements, and real estate professionals assisting the taxpayer. “Investors often need input to understand the strict rules of identification and other procedural issues,” said McDonnell, “QIs are integral to the efficiency of the process.”
    Encouraging active and ongoing reinvestment in property were central to Congress’ original intent for enacting the tax deferral status of IRC Section 1031 in 1921. Under the rules, a taxpayer completing an exchange cannot have receipt of the funds from a sale without creating a taxable event. Professional QIs ensure that the sale proceeds are properly restricted. Any funds unused for reinvestment are returned to the taxpayer at termination of the exchange and this portion is then taxable.
    The rise of the professional QI in the last 25 years has given small investors valuable assistance in complying with IRC 1031s provisions, while providing a check on exuberant investors trying to abuse the tax code. While larger assets are routinely exchanged, a 2011 survey of members of the Federation of Exchange Accommodators found that more than a third of exchange transactions were below $500,000. “Through Section 1031, many asset owners are exchanging to build or preserve their life savings. We see a significant amount of middle class taxpayers exchanging single family rental homes, farmland, and construction equipment. There’s no doubt that Section 1031 promotes investment in small to medium sized businesses. Most QIs are small businesses, themselves,” said Steve Chacon, incoming president of the FEA and a vice president at Accruit, a national QI firm based in Denver. Typical fees for a Qualified Intermediary’s services are between $750 and $1500 per exchange.
    California and Colorado see the highest number of exchange transactions each year, but the use of 1031 exchanges is widespread across the country. QIs facilitate exchanges nationally in many industries, including both residential investment real estate and commercial real estate, construction, the vehicle/equipment rental and leasing industries, transportation, agriculture, farming and ranching and other industries.
    About the Federation of Exchange Accommodators (FEA)
    The FEA (www.1031.org), whose tagline is “The Voice of the 1031 Industry,” is a national trade association representing professionals who conduct like-kind exchanges under Internal Revenue Code Section 1031. Members of the association include Qualified Intermediary firms, title companies, their primary tax and legal counsel, and affiliated industries (TIC sponsors, banks, real estate brokers, title companies, settlement/escrow agents, etc.). The FEA helps QIs raise the professional quality of their services while keeping their fees affordable for small investors. The FEA offers professional QIs the opportunity to demonstrate their experience, technical expertise and commitment to ethical practices by obtaining the Certified Exchange Specialist® (CES®) designation. The designation requires a QI to have three years’ full-time experience as a QI, to pass a rigorous knowledge exam, and to adhere to a strict code of ethics.
    FEA Contacts
    Margo McDonnell
    1031 CORP.
    Providence Corporate Center
    100 Springhouse Drive, Suite 203
    Collegeville, PA 19426
    Toll-free: (800) 828-1031
    Local: (610) 792-4880
    Fax: (610) 489-4366
    mailto:margo@1031corp.com”>margo@1031corp.commailto:stevec@accruit.com”>stevec@accruit.com

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.

  • Is Your 1031 Exchange Straddling Two Tax Years?

    Most users of Section 1031 understand the 180-calendar day deadline to complete their like-kind exchange.  This general understanding of the exchange period deadline is fine for most transactions, but many exchangers remain unaware of the more nuanced definition of this critical period.
    What do the regulations say?
    Section 1031’s underlying regulations state, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed by chapter 1 of subtitle A of the Code for the taxable year in which the transfer of the relinquished property occurs.”
    What do the regulations mean?
    The regulations generally allow for 180 calendar days for taxpayers to complete their 1031 exchanges that straddle tax years, taxpayers may seek installment tax reporting on IRS Form 6252 in the year of the relinquished property sale.  For instance, if the relinquished property closed between November 16 and December 31, the 45-day identification would be in the following calendar year.  Similarly, if the relinquished property closed after July 5, and potential replacement property was identified within the 45-day identification period but no replacement property was actually acquired, the end of the exchange period would be in the following calendar year.  If the 1031 exchange fails by non-identification or by failure to purchase a replacement property, the sale proceeds would be returned to the exchanger in a different tax reporting year.  In this circumstance, the IRS allows taxpayers to either report the gain in the year of sale or in the year the proceeds were received under IRC 453 installment sale rules.  This would allow the taxpayer to select the year of reporting that is most beneficial.  One might say that a year’s worth of tax deferral is available regardless of the exchange having failed.
    Taxpayers Beware
    Installment sale treatment generally requires a bona fide intent to complete an exchange.  This means that the taxpayer had reason to believe, based on the facts and circumstances at the beginning of the exchange, that a like-kind replacement property would be acquired during the exchange period.
    Other installment sale issues:

    If there was debt paid off at closing of the relinquished property and gain associated with this debt, relief is generally recognized in the year of sale. 
    Depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale.
    Interest is charged on the tax deferred if the sale price of the relinquished property is over $150,000 and certain other instalment obligations exceed $5 million.

    For taxpayers who have a taxable gain, there is one additional issue to consider.  If you are unsettled about current tax rates, you may extend your tax return to report by October 15.  This way, you can wait and see if the Congress will change the rates and select the year of reporting that is most beneficial for you.
    Check with your tax advisor to determine the correct tax forms and tax extensions to utilize along with the selection of the reporting year for your exchange.