Reverse 1031 Exchange Rules
Under IRS rules for 1031 Exchanges, a taxpayer must sell the old property, the Relinquished Property, prior to acquiring the new property, the Replacement Property. However due to a wide variety of circumstances, a taxpayer is often faced with losing the opportunity to buy the sought after Replacement Property due to a potential closing date prior in time to a sale of the Relinquished Property. At times, the Relinquished Property is already under contract for sale, but the closing date is beyond the date of a Replacement Property acquisition time, or on occasion the Relinquished Property is not even up for sale or under contract yet. In those situations, taxpayers can utilize a Reverse Exchange.
What is a Reverse Exchange?
The term “Reverse Exchange” refers to a fact pattern where a taxpayer needs to effectively close on the acquisition of the Replacement property prior to the sale of the Relinquished Property. The funny thing is that the way to accomplish a Reverse Exchange is to restructure it so that it is not “reverse” at all.
In the year 2000, the IRS provided a set of rules providing a “safe harbor” for Reverse Exchanges when following those rules making it so taxpayers can do a Reverse Exchange. The term, safe harbor, basically means that the structuring of such a transaction is pre-approved by the IRS and will not be challenged as to the structure. To better understand a real-life situation in which a Reverse Exchange may be utilized review this Reverse 1031 Exchange example.
Reverse Exchange Process
Let’s look at how a reverse 1031 exchange works. The solution provided by the IRS is easier than you might imagine. Essentially the rules suggest under a reverse 1031 exchange process, a taxpayer can retain the services of an exchange company to act as an “Accommodator”, known in the regulations as an Exchange Accommodation Titleholder (EAT), to acquire the Replacement Property and hold it on the taxpayer’s behalf. Under these rules, the reverse 1031 exchange timeline provides that a taxpayer then has up to 180 days to sell the Relinquished Property and consummate the exchange for the Replacement Property being held. Since the taxpayer has not literally acquired the Replacement Property before the sale of the Relinquished Property, he has closed in the proper sequence. Perhaps a bit of smoke and mirrors, but who cares…, the technique is provided for by the IRS. Take a look at this Reverse 1031 Exchange diagram, for a comprehensive visual of the process.
There are several steps to a valid Reverse 1031 Exchange, for a brief overview of these steps review the infographic.
Financing in a Reverse Exchange
In every deal, the question of how to finance the reverse 1031 exchange comes up. The Accommodator does not provide the funds for the purchase. That is done either by a loan from the taxpayer to the Accommodator and/or through a bank loan. That loan is paid back once the Relinquished Property is sold and those proceeds become available. Also, during the period where the Replacement Property is held by the Accommodator, it leases the property to the taxpayer effectively allowing the taxpayer to sublease the property to any actual property tenant and to collect and retain the rent. The taxpayer pays the utilities and other expenses per the terms of the lease. At the end of the day, the Accommodator just makes its fee, and all the economics are retained by the taxpayer.
Cost of a Reverse Exchange
Cost for a reverse 1031 exchange vary based upon a lot of factors. Such factors include the type of property such as residential, commercial, industrial, etc., the value of the property, and the source of financing, i.e., taxpayer funded, or bank financed. Sometimes there may be also be environmental issues to deal with which can affect cost. Remember, the exchange company is holding title to the property and the above considerations affect the cost.
Relationship of Reverse Exchange and Forward Exchange
People tend to be confused between the interplay of the Reverse Exchange and the related forward exchange. They often say, “Why do I need a forward exchange since I am doing (and paying for) a reverse exchange”. The answer is that although these both relate to a single overall transaction, they are separate, but necessary parts, to the whole transaction. As is now crystal clear to you, the reverse is being done to take the Replacement Property out of play and preserve your ability to trade for it. Technically a Reverse 1031 Exchange is not a 1031 exchange at all, better thought of as just a Reverse Exchange. The forward exchange is an actual 1031 Exchange where the Relinquished Property is sold and exchanged for the Replacement Property. Both are needed to complete a successful Reverse Exchange.
The forward exchange is serviced by a Qualified Intermediary pursuant to a different set of IRS rules than those for an Accommodator providing Reverse Exchange services. The Qualified Intermediary can be a single exchange company that is also wearing another hat acting as Accommodator, such as Accruit, or separate companies each providing services for just one type of exchange, but not both.
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.
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Reverse Exchange for Dummies
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Reverse Exchange for Dummies
Reverse 1031 Exchange Rules
Under IRS rules for 1031 Exchanges, a taxpayer must sell the old property, the Relinquished Property, prior to acquiring the new property, the Replacement Property. However due to a wide variety of circumstances, a taxpayer is often faced with losing the opportunity to buy the sought after Replacement Property due to a potential closing date prior in time to a sale of the Relinquished Property. At times, the Relinquished Property is already under contract for sale, but the closing date is beyond the date of a Replacement Property acquisition time, or on occasion the Relinquished Property is not even up for sale or under contract yet. In those situations, taxpayers can utilize a Reverse Exchange.
What is a Reverse Exchange?
The term “Reverse Exchange” refers to a fact pattern where a taxpayer needs to effectively close on the acquisition of the Replacement property prior to the sale of the Relinquished Property. The funny thing is that the way to accomplish a Reverse Exchange is to restructure it so that it is not “reverse” at all.
In the year 2000, the IRS provided a set of rules providing a “safe harbor” for Reverse Exchanges when following those rules making it so taxpayers can do a Reverse Exchange. The term, safe harbor, basically means that the structuring of such a transaction is pre-approved by the IRS and will not be challenged as to the structure. To better understand a real-life situation in which a Reverse Exchange may be utilized review this Reverse 1031 Exchange example.
Reverse Exchange Process
Let’s look at how a reverse 1031 exchange works. The solution provided by the IRS is easier than you might imagine. Essentially the rules suggest under a reverse 1031 exchange process, a taxpayer can retain the services of an exchange company to act as an “Accommodator”, known in the regulations as an Exchange Accommodation Titleholder (EAT), to acquire the Replacement Property and hold it on the taxpayer’s behalf. Under these rules, the reverse 1031 exchange timeline provides that a taxpayer then has up to 180 days to sell the Relinquished Property and consummate the exchange for the Replacement Property being held. Since the taxpayer has not literally acquired the Replacement Property before the sale of the Relinquished Property, he has closed in the proper sequence. Perhaps a bit of smoke and mirrors, but who cares…, the technique is provided for by the IRS. Take a look at this Reverse 1031 Exchange diagram, for a comprehensive visual of the process.
There are several steps to a valid Reverse 1031 Exchange, for a brief overview of these steps review the infographic.
Financing in a Reverse Exchange
In every deal, the question of how to finance the reverse 1031 exchange comes up. The Accommodator does not provide the funds for the purchase. That is done either by a loan from the taxpayer to the Accommodator and/or through a bank loan. That loan is paid back once the Relinquished Property is sold and those proceeds become available. Also, during the period where the Replacement Property is held by the Accommodator, it leases the property to the taxpayer effectively allowing the taxpayer to sublease the property to any actual property tenant and to collect and retain the rent. The taxpayer pays the utilities and other expenses per the terms of the lease. At the end of the day, the Accommodator just makes its fee, and all the economics are retained by the taxpayer.
Cost of a Reverse Exchange
Cost for a reverse 1031 exchange vary based upon a lot of factors. Such factors include the type of property such as residential, commercial, industrial, etc., the value of the property, and the source of financing, i.e., taxpayer funded, or bank financed. Sometimes there may be also be environmental issues to deal with which can affect cost. Remember, the exchange company is holding title to the property and the above considerations affect the cost.
Relationship of Reverse Exchange and Forward Exchange
People tend to be confused between the interplay of the Reverse Exchange and the related forward exchange. They often say, “Why do I need a forward exchange since I am doing (and paying for) a reverse exchange”. The answer is that although these both relate to a single overall transaction, they are separate, but necessary parts, to the whole transaction. As is now crystal clear to you, the reverse is being done to take the Replacement Property out of play and preserve your ability to trade for it. Technically a Reverse 1031 Exchange is not a 1031 exchange at all, better thought of as just a Reverse Exchange. The forward exchange is an actual 1031 Exchange where the Relinquished Property is sold and exchanged for the Replacement Property. Both are needed to complete a successful Reverse Exchange.
The forward exchange is serviced by a Qualified Intermediary pursuant to a different set of IRS rules than those for an Accommodator providing Reverse Exchange services. The Qualified Intermediary can be a single exchange company that is also wearing another hat acting as Accommodator, such as Accruit, or separate companies each providing services for just one type of exchange, but not both.
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. -
Self-Directed IRA and 1031 Exchanges: Powerful Tools for a Real Estate Investor
What is an IRA?
IRA stands for Individual Retirement Arrangement, and Investors may make contributions to their Individual Retirement Accounts. According to the Internal Revenue Service, a traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible. They use the word “may” because there are annual contribution limits based on age and income, and whether the investor is covered by a retirement plan at work. For 2023, the annual contribution limit is $6,500, or $7,500 if the investor is age 50 or older.
Contributions made to an IRA within the IRS limits are tax deductible, and any interest or growth on those investments is tax deferred. Withdrawals made before age 59-½ are subject to penalties, and investors must start making withdrawals when they reach age 73. When the investor starts making withdrawals, those withdrawals are taxed as ordinary income.
IRAs are held by a custodian, such as banks, brokerages, or other financial institutions, many of which have recognizable names, including our affiliate, https://inspirafinancial.com/”>Inspira Financial. There are many kinds of assets an investor may hold in their IRA (subject to several prohibitions, including collectibles and insurance policies). However, the largest brokerages and financial institutions tend to limit investments to stocks, bonds, and mutual funds. (Self-Directed IRA (“SDIRA”) is an IRA held by a custodian that allows for investment in a broader range of assets than other IRA custodians. These “alternative assets” may include real estate, precious metals and other commodities, tax lien certificates, and others. Additionally, while the custodian administers the account, it is directly managed by the investor, which is why it is called self-directed. As with traditional IRAs, SDIRA contributions and transactions are tax deductible.
Among the more common investments in SDIRAs is investment in real estate. These investments can be in the form of single-family, multi-family, commercial, industrial, office, improved or unimproved land, or virtually any other interest in investment real estate. Foreign real estate is also permitted.
When owning real estate inside of an SDIRA, all income from the real estate belongs to the SDIRA, not to the investor. Thus, the investor cannot use any rental income from the real estate to cover personal living expenses. Additionally, when selling real estate that is owned by the SDIRA, all profits or losses belong to the SDIRA and continue to grow tax deferred. If the investor chooses to reinvest in more real estate, there are no timing restrictions, and proceeds may be held in the SDIRA until they are deployed toward the acquisition of a new asset. There are prohibitions on “self-dealing” that are essentially the same as the related party rules in a Section 1031 exchange. This rule also prohibits investors from making any personal use of an SDIRA asset.
Section 1031 Exchanges Compared to SDIRAs
Section 1031 of the Internal Revenue Code allows an owner of business or investment real estate to sell old property (Relinquished Property) and acquire new property (Replacement Property) without paying any taxes on the profit (capital gains) of the sale of the old property. The principle underlying these “tax-deferred exchanges” is that by using the exchange value from one property to buy another—instead of receiving cash for that exchange value—the property owner is simply continuing the investment from the original property into the new property. As such, the IRS will not recognize the sale as a taxable event, provided that the owner (referred to in this article as the “taxpayer” or “exchanger”) adheres to the many rules governing exchanges.
As with the SDIRA, in a 1031 Exchange, real estate can be any asset class – single-family, multi-family, commercial, industrial, raw land, etc. Section 1031 rules require that both the Relinquished and Replacement Properties be “held for productive use in a trade or business or for investment”. This is similar to the prohibition on self-dealing discussed above. Moreover, Section 1031 provides for a deferral of the state and federal capital gains and depreciation recapture taxes, as well as the net investment income tax, if applicable much like the SDIRA. But the similarities largely fade after this point.
SDIRA and 1031 Exchange Differences
First, there are no limits to the amount of money that can be invested using Section 1031. Further, while rental income from SDIRA property must stay within the SDIRA, any income generated from a Section 1031 exchange property can be used by the taxpayer to pay their own personal expenses, or however they wish. Another unique requirement for a valid 1031 exchange is that upon the sale of the Relinquished Property, the proceeds must be held by a Qualified Intermediary, and the taxpayer must avoid even “constructive receipt” of the exchange funds. Lastly, there are strict time limits imposed on Section 1031 exchange transactions, including the 45-day Identification Period and the 180-day Exchange period.
Starting with the date of sale of the Relinquished Property, the taxpayer must identify a short list of potential Replacement Properties within 45 days following one of the identification rules and the taxpayer must complete the acquisition of one or more of those identified properties within 180 days (or the due date of the taxpayer’s tax return for the year that the exchange commenced).
And while foreign real estate may be part of the taxpayer’s portfolio, foreign real estate is not like-kind to domestic real estate, and they cannot be part of the same 1031 Exchange transaction.
Consult with a Professional
Since owning investment real estate inside an SDIRA is already a tax-deferred situation, the use of Section 1031 on the sale of SDIRA real estate is not necessary. But many investors who hold real estate inside an SDIRA also hold investment real estate directly, outside of their SDIRA. Owning investment real estate in an SDIRA, or outside of the SDIRA, each have merits and pitfalls. Each can be part of a successful real estate investment strategy, independently, or together. This article is not intended to be an exhaustive dissertation on the uses of these two investment strategies, but rather a conversation starter. Investors are encouraged to discuss their unique situations with their financial planner, attorney, and accountant, as well as a 1031 exchange representative at Accruit.
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. -
Self-Directed IRA and 1031 Exchanges: Powerful Tools for a Real Estate Investor
What is an IRA?
IRA stands for Individual Retirement Arrangement, and Investors may make contributions to their Individual Retirement Accounts. According to the Internal Revenue Service, a traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible. They use the word “may” because there are annual contribution limits based on age and income, and whether the investor is covered by a retirement plan at work. For 2023, the annual contribution limit is $6,500, or $7,500 if the investor is age 50 or older.
Contributions made to an IRA within the IRS limits are tax deductible, and any interest or growth on those investments is tax deferred. Withdrawals made before age 59-½ are subject to penalties, and investors must start making withdrawals when they reach age 73. When the investor starts making withdrawals, those withdrawals are taxed as ordinary income.
IRAs are held by a custodian, such as banks, brokerages, or other financial institutions, many of which have recognizable names, including our affiliate, https://inspirafinancial.com/”>Inspira Financial. There are many kinds of assets an investor may hold in their IRA (subject to several prohibitions, including collectibles and insurance policies). However, the largest brokerages and financial institutions tend to limit investments to stocks, bonds, and mutual funds. (Self-Directed IRA (“SDIRA”) is an IRA held by a custodian that allows for investment in a broader range of assets than other IRA custodians. These “alternative assets” may include real estate, precious metals and other commodities, tax lien certificates, and others. Additionally, while the custodian administers the account, it is directly managed by the investor, which is why it is called self-directed. As with traditional IRAs, SDIRA contributions and transactions are tax deductible.
Among the more common investments in SDIRAs is investment in real estate. These investments can be in the form of single-family, multi-family, commercial, industrial, office, improved or unimproved land, or virtually any other interest in investment real estate. Foreign real estate is also permitted.
When owning real estate inside of an SDIRA, all income from the real estate belongs to the SDIRA, not to the investor. Thus, the investor cannot use any rental income from the real estate to cover personal living expenses. Additionally, when selling real estate that is owned by the SDIRA, all profits or losses belong to the SDIRA and continue to grow tax deferred. If the investor chooses to reinvest in more real estate, there are no timing restrictions, and proceeds may be held in the SDIRA until they are deployed toward the acquisition of a new asset. There are prohibitions on “self-dealing” that are essentially the same as the related party rules in a Section 1031 exchange. This rule also prohibits investors from making any personal use of an SDIRA asset.
Section 1031 Exchanges Compared to SDIRAs
Section 1031 of the Internal Revenue Code allows an owner of business or investment real estate to sell old property (Relinquished Property) and acquire new property (Replacement Property) without paying any taxes on the profit (capital gains) of the sale of the old property. The principle underlying these “tax-deferred exchanges” is that by using the exchange value from one property to buy another—instead of receiving cash for that exchange value—the property owner is simply continuing the investment from the original property into the new property. As such, the IRS will not recognize the sale as a taxable event, provided that the owner (referred to in this article as the “taxpayer” or “exchanger”) adheres to the many rules governing exchanges.
As with the SDIRA, in a 1031 Exchange, real estate can be any asset class – single-family, multi-family, commercial, industrial, raw land, etc. Section 1031 rules require that both the Relinquished and Replacement Properties be “held for productive use in a trade or business or for investment”. This is similar to the prohibition on self-dealing discussed above. Moreover, Section 1031 provides for a deferral of the state and federal capital gains and depreciation recapture taxes, as well as the net investment income tax, if applicable much like the SDIRA. But the similarities largely fade after this point.
SDIRA and 1031 Exchange Differences
First, there are no limits to the amount of money that can be invested using Section 1031. Further, while rental income from SDIRA property must stay within the SDIRA, any income generated from a Section 1031 exchange property can be used by the taxpayer to pay their own personal expenses, or however they wish. Another unique requirement for a valid 1031 exchange is that upon the sale of the Relinquished Property, the proceeds must be held by a Qualified Intermediary, and the taxpayer must avoid even “constructive receipt” of the exchange funds. Lastly, there are strict time limits imposed on Section 1031 exchange transactions, including the 45-day Identification Period and the 180-day Exchange period.
Starting with the date of sale of the Relinquished Property, the taxpayer must identify a short list of potential Replacement Properties within 45 days following one of the identification rules and the taxpayer must complete the acquisition of one or more of those identified properties within 180 days (or the due date of the taxpayer’s tax return for the year that the exchange commenced).
And while foreign real estate may be part of the taxpayer’s portfolio, foreign real estate is not like-kind to domestic real estate, and they cannot be part of the same 1031 Exchange transaction.
Consult with a Professional
Since owning investment real estate inside an SDIRA is already a tax-deferred situation, the use of Section 1031 on the sale of SDIRA real estate is not necessary. But many investors who hold real estate inside an SDIRA also hold investment real estate directly, outside of their SDIRA. Owning investment real estate in an SDIRA, or outside of the SDIRA, each have merits and pitfalls. Each can be part of a successful real estate investment strategy, independently, or together. This article is not intended to be an exhaustive dissertation on the uses of these two investment strategies, but rather a conversation starter. Investors are encouraged to discuss their unique situations with their financial planner, attorney, and accountant, as well as a 1031 exchange representative at Accruit.
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. -
Self-Directed IRA and 1031 Exchanges: Powerful Tools for a Real Estate Investor
What is an IRA?
IRA stands for Individual Retirement Arrangement, and Investors may make contributions to their Individual Retirement Accounts. According to the Internal Revenue Service, a traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible. They use the word “may” because there are annual contribution limits based on age and income, and whether the investor is covered by a retirement plan at work. For 2023, the annual contribution limit is $6,500, or $7,500 if the investor is age 50 or older.
Contributions made to an IRA within the IRS limits are tax deductible, and any interest or growth on those investments is tax deferred. Withdrawals made before age 59-½ are subject to penalties, and investors must start making withdrawals when they reach age 73. When the investor starts making withdrawals, those withdrawals are taxed as ordinary income.
IRAs are held by a custodian, such as banks, brokerages, or other financial institutions, many of which have recognizable names, including our affiliate, https://inspirafinancial.com/”>Inspira Financial. There are many kinds of assets an investor may hold in their IRA (subject to several prohibitions, including collectibles and insurance policies). However, the largest brokerages and financial institutions tend to limit investments to stocks, bonds, and mutual funds. (Self-Directed IRA (“SDIRA”) is an IRA held by a custodian that allows for investment in a broader range of assets than other IRA custodians. These “alternative assets” may include real estate, precious metals and other commodities, tax lien certificates, and others. Additionally, while the custodian administers the account, it is directly managed by the investor, which is why it is called self-directed. As with traditional IRAs, SDIRA contributions and transactions are tax deductible.
Among the more common investments in SDIRAs is investment in real estate. These investments can be in the form of single-family, multi-family, commercial, industrial, office, improved or unimproved land, or virtually any other interest in investment real estate. Foreign real estate is also permitted.
When owning real estate inside of an SDIRA, all income from the real estate belongs to the SDIRA, not to the investor. Thus, the investor cannot use any rental income from the real estate to cover personal living expenses. Additionally, when selling real estate that is owned by the SDIRA, all profits or losses belong to the SDIRA and continue to grow tax deferred. If the investor chooses to reinvest in more real estate, there are no timing restrictions, and proceeds may be held in the SDIRA until they are deployed toward the acquisition of a new asset. There are prohibitions on “self-dealing” that are essentially the same as the related party rules in a Section 1031 exchange. This rule also prohibits investors from making any personal use of an SDIRA asset.
Section 1031 Exchanges Compared to SDIRAs
Section 1031 of the Internal Revenue Code allows an owner of business or investment real estate to sell old property (Relinquished Property) and acquire new property (Replacement Property) without paying any taxes on the profit (capital gains) of the sale of the old property. The principle underlying these “tax-deferred exchanges” is that by using the exchange value from one property to buy another—instead of receiving cash for that exchange value—the property owner is simply continuing the investment from the original property into the new property. As such, the IRS will not recognize the sale as a taxable event, provided that the owner (referred to in this article as the “taxpayer” or “exchanger”) adheres to the many rules governing exchanges.
As with the SDIRA, in a 1031 Exchange, real estate can be any asset class – single-family, multi-family, commercial, industrial, raw land, etc. Section 1031 rules require that both the Relinquished and Replacement Properties be “held for productive use in a trade or business or for investment”. This is similar to the prohibition on self-dealing discussed above. Moreover, Section 1031 provides for a deferral of the state and federal capital gains and depreciation recapture taxes, as well as the net investment income tax, if applicable much like the SDIRA. But the similarities largely fade after this point.
SDIRA and 1031 Exchange Differences
First, there are no limits to the amount of money that can be invested using Section 1031. Further, while rental income from SDIRA property must stay within the SDIRA, any income generated from a Section 1031 exchange property can be used by the taxpayer to pay their own personal expenses, or however they wish. Another unique requirement for a valid 1031 exchange is that upon the sale of the Relinquished Property, the proceeds must be held by a Qualified Intermediary, and the taxpayer must avoid even “constructive receipt” of the exchange funds. Lastly, there are strict time limits imposed on Section 1031 exchange transactions, including the 45-day Identification Period and the 180-day Exchange period.
Starting with the date of sale of the Relinquished Property, the taxpayer must identify a short list of potential Replacement Properties within 45 days following one of the identification rules and the taxpayer must complete the acquisition of one or more of those identified properties within 180 days (or the due date of the taxpayer’s tax return for the year that the exchange commenced).
And while foreign real estate may be part of the taxpayer’s portfolio, foreign real estate is not like-kind to domestic real estate, and they cannot be part of the same 1031 Exchange transaction.
Consult with a Professional
Since owning investment real estate inside an SDIRA is already a tax-deferred situation, the use of Section 1031 on the sale of SDIRA real estate is not necessary. But many investors who hold real estate inside an SDIRA also hold investment real estate directly, outside of their SDIRA. Owning investment real estate in an SDIRA, or outside of the SDIRA, each have merits and pitfalls. Each can be part of a successful real estate investment strategy, independently, or together. This article is not intended to be an exhaustive dissertation on the uses of these two investment strategies, but rather a conversation starter. Investors are encouraged to discuss their unique situations with their financial planner, attorney, and accountant, as well as a 1031 exchange representative at Accruit.
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. -
Exchange Manager Pro(SM) Achieves SOC 2 Type II Compliance
In Fall 2022, Exchange Manager ProSM completed its’ SOC 2 Type I Report, which reviewed Accruit’s internal processes and procedures in relations to how both the company and its software handles customer data. Successfully achieving SOC 2 Type I established that Accruit’s procedures for handling customers data and information met the industry leading requirements for safeguarding customer data.
Over the past nine months, Secureframe has been reviewing in detail the information and assurance of the execution of the controls Accruit has in place relevant to security, availability, and processing integrity of Exchange Manager ProSM pertaining to users’ data and the confidentially and privacy of the information processed. By achieving SOC 2 Type II, Johanson Group attests to Accruit’s information security controls meet the leading industry standards for security, confidentiality, availability, privacy, and processing.
Starting out as Accruit’s in-house software for processing 1031 Exchanges, Exchange Manager ProSM, is now a SaaS (Software as a Service) offering utilized by several Qualified Intermediaries to process their 1031 Exchanges. Through embedded controls, automated workflows and digital document creation and execution, Exchange Manager ProSM has revolutionized the way in which 1031 Exchanges are processed across the industry.
“By developing Exchange Manager ProSM, a cloud-based technology, Accruit is quickly revolutionizing the 1031 exchange marketplace and becoming the industry standard. Utilizing Exchange Manager ProSM for the efficient processing of 1031 Exchanges is why we dedicated time and effort to ensure our client’s data is managed through tested redundancies, high security and uncompromised procedures,” stated Brent Abrahm, CEO of Accruit.
About Accruit Technologies
Accruit Technologies, a wholly owned subsidiary of Inspira Financial, developed Exchange Manager ProSM, a proprietary, cloud-based SaaS application that makes administering 1031 exchanges safe, secure, and simple. Exchange Manager ProSM SOC 2 Type I and Type II certified, is designed to automate routine functions of Qualified Intermediaries including online client onboarding, document creation and distribution, and automatic deadline reminders and notifications. -
Exchange Manager Pro(SM) Achieves SOC 2 Type II Compliance
In Fall 2022, Exchange Manager ProSM completed its’ SOC 2 Type I Report, which reviewed Accruit’s internal processes and procedures in relations to how both the company and its software handles customer data. Successfully achieving SOC 2 Type I established that Accruit’s procedures for handling customers data and information met the industry leading requirements for safeguarding customer data.
Over the past nine months, Secureframe has been reviewing in detail the information and assurance of the execution of the controls Accruit has in place relevant to security, availability, and processing integrity of Exchange Manager ProSM pertaining to users’ data and the confidentially and privacy of the information processed. By achieving SOC 2 Type II, Johanson Group attests to Accruit’s information security controls meet the leading industry standards for security, confidentiality, availability, privacy, and processing.
Starting out as Accruit’s in-house software for processing 1031 Exchanges, Exchange Manager ProSM, is now a SaaS (Software as a Service) offering utilized by several Qualified Intermediaries to process their 1031 Exchanges. Through embedded controls, automated workflows and digital document creation and execution, Exchange Manager ProSM has revolutionized the way in which 1031 Exchanges are processed across the industry.
“By developing Exchange Manager ProSM, a cloud-based technology, Accruit is quickly revolutionizing the 1031 exchange marketplace and becoming the industry standard. Utilizing Exchange Manager ProSM for the efficient processing of 1031 Exchanges is why we dedicated time and effort to ensure our client’s data is managed through tested redundancies, high security and uncompromised procedures,” stated Brent Abrahm, CEO of Accruit.
About Accruit Technologies
Accruit Technologies, a wholly owned subsidiary of Inspira Financial, developed Exchange Manager ProSM, a proprietary, cloud-based SaaS application that makes administering 1031 exchanges safe, secure, and simple. Exchange Manager ProSM SOC 2 Type I and Type II certified, is designed to automate routine functions of Qualified Intermediaries including online client onboarding, document creation and distribution, and automatic deadline reminders and notifications. -
Exchange Manager Pro(SM) Achieves SOC 2 Type II Compliance
In Fall 2022, Exchange Manager ProSM completed its’ SOC 2 Type I Report, which reviewed Accruit’s internal processes and procedures in relations to how both the company and its software handles customer data. Successfully achieving SOC 2 Type I established that Accruit’s procedures for handling customers data and information met the industry leading requirements for safeguarding customer data.
Over the past nine months, Secureframe has been reviewing in detail the information and assurance of the execution of the controls Accruit has in place relevant to security, availability, and processing integrity of Exchange Manager ProSM pertaining to users’ data and the confidentially and privacy of the information processed. By achieving SOC 2 Type II, Johanson Group attests to Accruit’s information security controls meet the leading industry standards for security, confidentiality, availability, privacy, and processing.
Starting out as Accruit’s in-house software for processing 1031 Exchanges, Exchange Manager ProSM, is now a SaaS (Software as a Service) offering utilized by several Qualified Intermediaries to process their 1031 Exchanges. Through embedded controls, automated workflows and digital document creation and execution, Exchange Manager ProSM has revolutionized the way in which 1031 Exchanges are processed across the industry.
“By developing Exchange Manager ProSM, a cloud-based technology, Accruit is quickly revolutionizing the 1031 exchange marketplace and becoming the industry standard. Utilizing Exchange Manager ProSM for the efficient processing of 1031 Exchanges is why we dedicated time and effort to ensure our client’s data is managed through tested redundancies, high security and uncompromised procedures,” stated Brent Abrahm, CEO of Accruit.
About Accruit Technologies
Accruit Technologies, a wholly owned subsidiary of Inspira Financial, developed Exchange Manager ProSM, a proprietary, cloud-based SaaS application that makes administering 1031 exchanges safe, secure, and simple. Exchange Manager ProSM SOC 2 Type I and Type II certified, is designed to automate routine functions of Qualified Intermediaries including online client onboarding, document creation and distribution, and automatic deadline reminders and notifications. -
Are Properties Owned As Tenants In Common “Like-Kind” in a 1031 Exchange?
One of the most critical aspects of a Section 1031 is the idea that the properties involved must be “like-kind” to one another. This gives rise to a common misconception that “since I sold a single-family rental, I must buy a single-family rental.” The IRS clarified this issue in 2002 when it issued Revenue Procedure 2002-22.
At its core, Revenue Procedure 2002-22 authorized the acquisition of a Tenants in Common (“TIC”) interest in real estate as Replacement Property for other interests in real estate. In short, a TIC is a form of real estate ownership where two or more people each own undivided interests in the entire property. For a tenants in common ownership structure to be valid, and not construed as a partnership, several factors will be considered, including:
(i) the existence of a written tenants in common agreement among the co-owners;
(ii) the co-owners do not hold themselves out as a partnership by filing a partnership return, trading under a business name, or otherwise; and
(iii) their voting rights, rights to profits and losses, and other rights and responsibilities must be proportional to their respective investments in the property.
Where an investor wishes to acquire a TIC interest as Replacement Property in a 1031 Exchange, the identification of that TIC interest should be precise and explicit. It is not enough to identify “a TIC interest in 214 E. Second Street, Ottumwa, Iowa.” Rather, the identification should specify the fraction or percentage interest to be acquired, such as “an undivided one-half interest in 214 E. Second Street, Ottumwa, Iowa” or perhaps “an undivided 14.5 percent interest in 105 E Third Street, Ottumwa, Iowa.”
The use of the TIC ownership structure allows multiple investors to pool their resources to acquire a larger or more expensive property than they could otherwise acquire individually. And not everyone investing in the TIC property must be participating in a 1031 Exchange. For example, Rosa just sold a $125,000 investment property as part of a properly structured 1031 Exchange. She has found a great property in which to reinvest, but at $1.1M, it is too expensive for her. Rosa invites several of her friends to reinvest with her, each contributing various amounts to the purchase. Rosa will identify and acquire an undivided 11.36 percent interest in the property, with her friends acquiring the remaining portion of the property. -
Are Properties Owned As Tenants In Common “Like-Kind” in a 1031 Exchange?
One of the most critical aspects of a Section 1031 is the idea that the properties involved must be “like-kind” to one another. This gives rise to a common misconception that “since I sold a single-family rental, I must buy a single-family rental.” The IRS clarified this issue in 2002 when it issued Revenue Procedure 2002-22.
At its core, Revenue Procedure 2002-22 authorized the acquisition of a Tenants in Common (“TIC”) interest in real estate as Replacement Property for other interests in real estate. In short, a TIC is a form of real estate ownership where two or more people each own undivided interests in the entire property. For a tenants in common ownership structure to be valid, and not construed as a partnership, several factors will be considered, including:
(i) the existence of a written tenants in common agreement among the co-owners;
(ii) the co-owners do not hold themselves out as a partnership by filing a partnership return, trading under a business name, or otherwise; and
(iii) their voting rights, rights to profits and losses, and other rights and responsibilities must be proportional to their respective investments in the property.
Where an investor wishes to acquire a TIC interest as Replacement Property in a 1031 Exchange, the identification of that TIC interest should be precise and explicit. It is not enough to identify “a TIC interest in 214 E. Second Street, Ottumwa, Iowa.” Rather, the identification should specify the fraction or percentage interest to be acquired, such as “an undivided one-half interest in 214 E. Second Street, Ottumwa, Iowa” or perhaps “an undivided 14.5 percent interest in 105 E Third Street, Ottumwa, Iowa.”
The use of the TIC ownership structure allows multiple investors to pool their resources to acquire a larger or more expensive property than they could otherwise acquire individually. And not everyone investing in the TIC property must be participating in a 1031 Exchange. For example, Rosa just sold a $125,000 investment property as part of a properly structured 1031 Exchange. She has found a great property in which to reinvest, but at $1.1M, it is too expensive for her. Rosa invites several of her friends to reinvest with her, each contributing various amounts to the purchase. Rosa will identify and acquire an undivided 11.36 percent interest in the property, with her friends acquiring the remaining portion of the property.