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  • The right questions can be better than good answers

    You know the old proverb. Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. I was reminded of this adage when I came across a recent MIT study suggests that we learn from successes while we may not learn from failures at all).

    Of course, all these points have clear and powerful implications for the organization’s productivity and prospects in the marketplace.
    I’ll always remember a class I taught once, a number of years ago, at a small college in North Carolina. I was forcing my students to slog through a particularly frustrating problem, and every question they asked I answered with a question of my own. Finally, one of my brighter (and more vocal) charges snapped: “Will you just tell us the answer?!!”
    No, I wouldn’t, and if I had I’d have been doing them a disservice. She may, over time, have forgotten any answer I gave her, but I promise you, she’ll never forget how to fish.
    The same goes for your employees.

  • New information on 1031 reverse exchanges

    The financial and operational efficiency benefits of a 1031 exchange are well established. But what if your business isn’t in a position to sell an asset before you buy the replacement? Maybe you haven’t identified a buyer yet, or perhaps your situation requires you to keep using the existing asset until the replacement is online and ready to go?
    In these sorts of situations a 1031 like-kind exchange might make financial sense, but not logistical sense.
    The good news is that the tax code allows what’s known as a “reverse exchange,” which lets you buy the replacement asset first and sell the relinquished asset later. You can keep using your existing asset in the meantime, and you still get all the benefits of a forward exchange – that is, the ability to defer recognition on the gain from the sale, which can exceed 40% of the proceeds in some cases.
    Reverse exchanges aren’t as well known as other types of 1031 exchange and we get a lot of questions about how they work. So we’ve pulled together a more detailed resource that explains what it is, how it works, etc. We encourage you to take five minutes and have a look.

    Learn more about 1031 reverse exchanges of real estate
    1031 reverse exchanges

  • New information on 1031 reverse exchanges

    The financial and operational efficiency benefits of a 1031 exchange are well established. But what if your business isn’t in a position to sell an asset before you buy the replacement? Maybe you haven’t identified a buyer yet, or perhaps your situation requires you to keep using the existing asset until the replacement is online and ready to go?
    In these sorts of situations a 1031 like-kind exchange might make financial sense, but not logistical sense.
    The good news is that the tax code allows what’s known as a “reverse exchange,” which lets you buy the replacement asset first and sell the relinquished asset later. You can keep using your existing asset in the meantime, and you still get all the benefits of a forward exchange – that is, the ability to defer recognition on the gain from the sale, which can exceed 40% of the proceeds in some cases.
    Reverse exchanges aren’t as well known as other types of 1031 exchange and we get a lot of questions about how they work. So we’ve pulled together a more detailed resource that explains what it is, how it works, etc. We encourage you to take five minutes and have a look.

    Learn more about 1031 reverse exchanges of real estate
    1031 reverse exchanges

  • New information on 1031 reverse exchanges

    The financial and operational efficiency benefits of a 1031 exchange are well established. But what if your business isn’t in a position to sell an asset before you buy the replacement? Maybe you haven’t identified a buyer yet, or perhaps your situation requires you to keep using the existing asset until the replacement is online and ready to go?
    In these sorts of situations a 1031 like-kind exchange might make financial sense, but not logistical sense.
    The good news is that the tax code allows what’s known as a “reverse exchange,” which lets you buy the replacement asset first and sell the relinquished asset later. You can keep using your existing asset in the meantime, and you still get all the benefits of a forward exchange – that is, the ability to defer recognition on the gain from the sale, which can exceed 40% of the proceeds in some cases.
    Reverse exchanges aren’t as well known as other types of 1031 exchange and we get a lot of questions about how they work. So we’ve pulled together a more detailed resource that explains what it is, how it works, etc. We encourage you to take five minutes and have a look.

    Learn more about 1031 reverse exchanges of real estate
    1031 reverse exchanges

  • Case Study: Blue Jay Energy

    The Situation
    Blue Jay Energy (BJE) focuses on the exploration, development and production of natural gas and crude oil in several regions of the United States. The company currently has proved reserves in excess of one billion cubic feet of gas equivalent and a reserve-to-production ratio of over 10 years.
    The Problem
    As is common with energy exploration businesses, Blue Jay’s holdings include some underperforming fields. It recently decided to divest an oil and gas leasehold with tangible field machinery and equipment so that it could reinvest in properties it expected would generate greater yields. The property it intended to dispose of was comprised of 80% real property and 20% tangible well equipment. It quickly found a buyer, but the proposed $12.9 million sale price for their 85% operating interest would result in a tax liability of roughly $4 million.
    The Solution
    Blue Jay has conducted 1031 real property Exchanges in the past, but has done so with Qualified Intermediaries that rely on inefficient paper-based processes. As a result of this added administrative burden company leadership has never fully integrated Like- Kind Exchanges (LKEs) into their strategic planning, operations and asset recovery strategy.
    BJE was referred to Accruit by its bank. Accruit established a qualified escrow account under the Trust company at the bank to assure maximum security of funds. Accruit then helped the firm facilitate the sale and purchase of the new lease and equipment as an LKE.
    The Results
    The exchange was conducted successfully, allowing the company to defer $4 million in tax liability – money that it then invested in more promising properties and new oil and gas tubing and casing. In addition, Accruit’s patented process and one-to-one client services model created a degree of efficiency that Blue Jay had never imagined possible. Blue Jay’s senior leadership and finance team were enthusiastic about both the monetary benefit and the ease of use associated with the Accruit process. Other QIs they had worked with only specialized in real property and failed to account for the differences between real and tangible assets. Blue Jay is now considering implementation of a full-scale Accruit 1031 program.

  • Case Study: Blue Jay Energy

    The Situation
    Blue Jay Energy (BJE) focuses on the exploration, development and production of natural gas and crude oil in several regions of the United States. The company currently has proved reserves in excess of one billion cubic feet of gas equivalent and a reserve-to-production ratio of over 10 years.
    The Problem
    As is common with energy exploration businesses, Blue Jay’s holdings include some underperforming fields. It recently decided to divest an oil and gas leasehold with tangible field machinery and equipment so that it could reinvest in properties it expected would generate greater yields. The property it intended to dispose of was comprised of 80% real property and 20% tangible well equipment. It quickly found a buyer, but the proposed $12.9 million sale price for their 85% operating interest would result in a tax liability of roughly $4 million.
    The Solution
    Blue Jay has conducted 1031 real property Exchanges in the past, but has done so with Qualified Intermediaries that rely on inefficient paper-based processes. As a result of this added administrative burden company leadership has never fully integrated Like- Kind Exchanges (LKEs) into their strategic planning, operations and asset recovery strategy.
    BJE was referred to Accruit by its bank. Accruit established a qualified escrow account under the Trust company at the bank to assure maximum security of funds. Accruit then helped the firm facilitate the sale and purchase of the new lease and equipment as an LKE.
    The Results
    The exchange was conducted successfully, allowing the company to defer $4 million in tax liability – money that it then invested in more promising properties and new oil and gas tubing and casing. In addition, Accruit’s patented process and one-to-one client services model created a degree of efficiency that Blue Jay had never imagined possible. Blue Jay’s senior leadership and finance team were enthusiastic about both the monetary benefit and the ease of use associated with the Accruit process. Other QIs they had worked with only specialized in real property and failed to account for the differences between real and tangible assets. Blue Jay is now considering implementation of a full-scale Accruit 1031 program.

  • Case Study: Blue Jay Energy

    The Situation
    Blue Jay Energy (BJE) focuses on the exploration, development and production of natural gas and crude oil in several regions of the United States. The company currently has proved reserves in excess of one billion cubic feet of gas equivalent and a reserve-to-production ratio of over 10 years.
    The Problem
    As is common with energy exploration businesses, Blue Jay’s holdings include some underperforming fields. It recently decided to divest an oil and gas leasehold with tangible field machinery and equipment so that it could reinvest in properties it expected would generate greater yields. The property it intended to dispose of was comprised of 80% real property and 20% tangible well equipment. It quickly found a buyer, but the proposed $12.9 million sale price for their 85% operating interest would result in a tax liability of roughly $4 million.
    The Solution
    Blue Jay has conducted 1031 real property Exchanges in the past, but has done so with Qualified Intermediaries that rely on inefficient paper-based processes. As a result of this added administrative burden company leadership has never fully integrated Like- Kind Exchanges (LKEs) into their strategic planning, operations and asset recovery strategy.
    BJE was referred to Accruit by its bank. Accruit established a qualified escrow account under the Trust company at the bank to assure maximum security of funds. Accruit then helped the firm facilitate the sale and purchase of the new lease and equipment as an LKE.
    The Results
    The exchange was conducted successfully, allowing the company to defer $4 million in tax liability – money that it then invested in more promising properties and new oil and gas tubing and casing. In addition, Accruit’s patented process and one-to-one client services model created a degree of efficiency that Blue Jay had never imagined possible. Blue Jay’s senior leadership and finance team were enthusiastic about both the monetary benefit and the ease of use associated with the Accruit process. Other QIs they had worked with only specialized in real property and failed to account for the differences between real and tangible assets. Blue Jay is now considering implementation of a full-scale Accruit 1031 program.

  • The Imperial Real Estate Case Study

    The Problem
    William Smith purchased The Imperial Apartments in 1998 for $1.5M and he’s been taking approximately $50,000 in depreciation deductions against the property each year (27.5 year MACRS residential rental property). He sold the building in February 2008 for $2.5M.
    At the time of sale, his tax basis in the property was $1M. He purchased another apartment building in July, paying $3.25M. The new building is also 27.5 year MACRS residential rental property and is depreciated for tax purposes from the time of acquisition. Smith’s 2008 tax consequences are significant.
    The tax gain recognized on the sale of the apartment building is $1.5M ($2.5M sale price – $1M adjusted tax basis = $1.5M), making his total tax $350,000.
    • Federal Long-term Capital gains Tax: $1M appreciation x 15% = $150,000
    • Tax Attributable to Unrecaptured Section 1250 gain: $500,000 depreciation x 25% = $125,000
    • State/Local Tax (assumes 5% state tax rate): $1.5M tax gain x 5% = $75,000
    The Accruit Solution
    Working with Accruit, Smith structures the sale of The Imperial as a §1031 single exchange, letting him defer this tax debt indefinitely.
    The Results
    After executing an LKE, the recognized tax gain on the sale of The Imperial is $0. The benefit to Smith is the deferral of $1.5M of tax gain, resulting in a total tax savings of $350,000 in the year of sale.
    * This case is based on a typical real estate exchange scenario.

  • The Imperial Real Estate Case Study

    The Problem
    William Smith purchased The Imperial Apartments in 1998 for $1.5M and he’s been taking approximately $50,000 in depreciation deductions against the property each year (27.5 year MACRS residential rental property). He sold the building in February 2008 for $2.5M.
    At the time of sale, his tax basis in the property was $1M. He purchased another apartment building in July, paying $3.25M. The new building is also 27.5 year MACRS residential rental property and is depreciated for tax purposes from the time of acquisition. Smith’s 2008 tax consequences are significant.
    The tax gain recognized on the sale of the apartment building is $1.5M ($2.5M sale price – $1M adjusted tax basis = $1.5M), making his total tax $350,000.
    • Federal Long-term Capital gains Tax: $1M appreciation x 15% = $150,000
    • Tax Attributable to Unrecaptured Section 1250 gain: $500,000 depreciation x 25% = $125,000
    • State/Local Tax (assumes 5% state tax rate): $1.5M tax gain x 5% = $75,000
    The Accruit Solution
    Working with Accruit, Smith structures the sale of The Imperial as a §1031 single exchange, letting him defer this tax debt indefinitely.
    The Results
    After executing an LKE, the recognized tax gain on the sale of The Imperial is $0. The benefit to Smith is the deferral of $1.5M of tax gain, resulting in a total tax savings of $350,000 in the year of sale.
    * This case is based on a typical real estate exchange scenario.

  • The Imperial Real Estate Case Study

    The Problem
    William Smith purchased The Imperial Apartments in 1998 for $1.5M and he’s been taking approximately $50,000 in depreciation deductions against the property each year (27.5 year MACRS residential rental property). He sold the building in February 2008 for $2.5M.
    At the time of sale, his tax basis in the property was $1M. He purchased another apartment building in July, paying $3.25M. The new building is also 27.5 year MACRS residential rental property and is depreciated for tax purposes from the time of acquisition. Smith’s 2008 tax consequences are significant.
    The tax gain recognized on the sale of the apartment building is $1.5M ($2.5M sale price – $1M adjusted tax basis = $1.5M), making his total tax $350,000.
    • Federal Long-term Capital gains Tax: $1M appreciation x 15% = $150,000
    • Tax Attributable to Unrecaptured Section 1250 gain: $500,000 depreciation x 25% = $125,000
    • State/Local Tax (assumes 5% state tax rate): $1.5M tax gain x 5% = $75,000
    The Accruit Solution
    Working with Accruit, Smith structures the sale of The Imperial as a §1031 single exchange, letting him defer this tax debt indefinitely.
    The Results
    After executing an LKE, the recognized tax gain on the sale of The Imperial is $0. The benefit to Smith is the deferral of $1.5M of tax gain, resulting in a total tax savings of $350,000 in the year of sale.
    * This case is based on a typical real estate exchange scenario.