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  • Understanding Related Party Rules in 1031 Exchanges

    Understanding Related Party Rules in 1031 Exchanges

    There is often confusion surrounding 1031 Exchanges and related parties. A common misconception about 1031 Exchanges is that transactions involving related parties are prohibited. In reality, exchanges involving related parties are allowed, but come with stricter rules and oversight to ensure compliance with the tax code. Another point of confusion is what qualifies as a “related party”. Many assume it applies only to relatives, but the definition extends beyond family to include certain business entities and fiduciary relationships. Understanding related party rules is critical for investors looking to utilize a 1031 Exchange that is compliant with the tax code.
    Who is a Related Party? 
    The Internal Revenue Code provides clear guidelines on who qualifies as a https://www.accruit.com/blog/1031-tax-deferred-exchanges-between-relate… party in 1031 Exchanges. Under Sections 267(b) and 707(b)(1) of the Internal Revenue Code, related parties include: 

    Immediate Family Members: Siblings, spouses, ancestors (parents, grandparents), and descendants (children, grandchildren). 

    Business Entities with Significant Ownership or Control: Entities where the Exchanger holds more than 50% ownership, such as corporations, partnerships, or trusts; two corporations that are members of the same controlled group; and corporations and partnerships with more than 50% direct or indirect common ownership. 

    Certain Fiduciary Relationships: Ex. An Exchanger and the fiduciary of a trust. 

    Affiliated Businesses: Entities that are directly or indirectly controlled by the Exchanger or their immediate family. 

    This broad definition ensures that any transaction involving individuals or entities with close personal or financial ties is subject to heightened scrutiny. https://www.accruit.com/blog/video-related-party-rules-1031-exchange”>T… Related Party Rules are designed to prevent potential abuse, such as shifting tax liabilities or inflating property values in ways that undermine the intent of a 1031 Exchange. 
    It’s also important to note that these relationships are closely monitored to ensure the legitimacy of the transaction. If an exchange involving related parties fails to meet the requirements, the transaction may be disqualified, and tax deferral could be denied. Understanding these parameters is essential for Exchangers considering transactions with related parties. 
    The Tax Reform Act of 1984 
    Before the 1980s, Exchangers could potentially conduct a 1031 Exchange with related party real estate to manipulate property values or defer taxes improperly. For instance, two related parties might exchange properties where one has experienced significant appreciation, in order to shift tax liabilities. To address this issue, Congress strengthened the statute. The Tax Reform Act of 1984 introduced critical changes to related party exchanges, implementing safeguards to ensure these transactions were legitimate and not used to evade taxes. 
    Direct Related Party Exchanges 
    The introduction of the two-year holding period under the Tax Reform Act of 1984 fundamentally reshaped the landscape of 1031 Exchanges involving related parties. This rule only applies to a direct swap, which occurs when both parties directly swap properties with one another simultaneously and stipulates that both parties must hold their new properties for at least two years following the transaction. If either party disposes of their exchanged property within the two-year window, the tax-deferral benefit is retroactively revoked, and the original capital gain becomes fully taxable in the year the property is transferred. Again, this rule is only true in a direct exchange between related parties and does not apply if an Exchanger sells their Relinquished Property to a related party or purchases their Replacement Property from a related party. 
    Exceptions to the Two-Year Rule 
    There are specific circumstances where the two-year holding period rule does not apply. One circumstance involves the death of an involved party. If one of the parties involved in the exchange passes away during the two-year period, the rule is waived. Another exception includes situations like eminent domain or natural disasters that force the disposition of a property. For example, the holding period requirement may be waived if a government agency acquires the property for public use or a disaster makes the property unusable. Lastly, the rule does not apply if the IRS determines through an audit that the transaction was not structured to avoid taxes, requiring the Exchanger to demonstrate legitimacy of their intent for the transaction. 
    Relinquished Property to Related Party Considerations 
    Selling Relinquished Property to a related party in a 1031 Exchange is generally more straightforward than other related party scenarios. Unlike direct exchanges, there are no specific holding period requirements if an Exchanger sells their Relinquished Property to a related party in a 1031 Exchange. As long as the sale of the Relinquished Property complies with IRC Section 1031 guidelines, such as proper use for business/investment purposes and adherence to identification and timing rules, it can proceed without any additional considerations. 
    Considerations for Buying Replacement Property from a Related Party 
    Buying Replacement Property from a related party, however, involves stricter requirements. In order for this transaction to qualify under 1031 Exchange rules, the related party selling the Replacement Property must also be conducting a 1031 Exchange. In this case, the Replacement Property being acquired would simultaneously serve as the related party’s Relinquished Property. If the related party is not conducting a 1031 Exchange, the transaction would be disqualified from 1031 Exchange treatment under IRS regulations.  
    Why Related Party Rules Exist 
    The two-year holding period and Related Party Rules from the 1984 amendment were designed to protect the integrity of the tax system. Before these changes, related party transactions in 1031 Exchanges could be misused for tax avoidance. When it applies, the holding period seeks to avoid improper basis shifting between the related parties. For example, consider two related parties: Party A and Party B. Party A owns a property with a low adjusted basis while Party B owns a property with a high basis. If Party A exchanges their property for Party B’s property, Party A transfers their low basis to Party B, avoiding substantial taxation upon sale. Party B could then sell the acquired property after the exchange, incurring minimal taxable gain due to the higher basis, which undermines the intended purpose of a 1031 Exchange.   
    By addressing ambiguities surrounding these exchanges, the amendment boosts confidence in the fairness of the tax code. https://www.irs.gov/pub/irs-pdf/f8824.pdf”>IRS Form 8824 reflects the heightened scrutiny of related party exchanges and outlines steps for Exchangers to ensure compliance. Specifically, lines 7-11 require Exchangers to disclose detailed information about the related party, the nature of the relationship, and whether the Relinquished and Replacement Property(ies) were transferred to/from a related party. These disclosures help the IRS identify potential compliance issues within a related party exchange. 
    Considerations for Related Party 1031 Exchanges 
    For Exchangers considering a 1031 Exchange that involves a related party, here are some key considerations: 

    Plan for the Two-Year Holding Period: Ensure that both you and the related party can hold the exchanged properties for at least two years where it is applicable. Disposing of property before the two-year period will trigger immediate tax consequences. 

    Document the Transaction: Maintain clear records of the exchange, including appraisals, contracts, and any correspondence with the related party. This documentation will be critical if the IRS scrutinizes the transaction.  

    Seek Professional Guidance: Related party transactions are complex and monitored closely by the IRS. To ensure compliance with all regulations, consult tax and legal advisors and work with a Qualified Intermediary like Accruit, who specializes in 1031 Exchanges. 

    By understanding these considerations, Exchangers can confidently navigate the complexities of related party transactions while preserving the benefits of a 1031 Exchange. With careful planning, thorough documentation, and professional support, Exchangers can avoid common pitfalls and achieve a successful investment strategy.  
     
    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.      

  • Understanding Related Party Rules in 1031 Exchanges

    Understanding Related Party Rules in 1031 Exchanges

    There is often confusion surrounding 1031 Exchanges and related parties. A common misconception about 1031 Exchanges is that transactions involving related parties are prohibited. In reality, exchanges involving related parties are allowed, but come with stricter rules and oversight to ensure compliance with the tax code. Another point of confusion is what qualifies as a “related party”. Many assume it applies only to relatives, but the definition extends beyond family to include certain business entities and fiduciary relationships. Understanding related party rules is critical for investors looking to utilize a 1031 Exchange that is compliant with the tax code.
    Who is a Related Party? 
    The Internal Revenue Code provides clear guidelines on who qualifies as a https://www.accruit.com/blog/1031-tax-deferred-exchanges-between-relate… party in 1031 Exchanges. Under Sections 267(b) and 707(b)(1) of the Internal Revenue Code, related parties include: 

    Immediate Family Members: Siblings, spouses, ancestors (parents, grandparents), and descendants (children, grandchildren). 

    Business Entities with Significant Ownership or Control: Entities where the Exchanger holds more than 50% ownership, such as corporations, partnerships, or trusts; two corporations that are members of the same controlled group; and corporations and partnerships with more than 50% direct or indirect common ownership. 

    Certain Fiduciary Relationships: Ex. An Exchanger and the fiduciary of a trust. 

    Affiliated Businesses: Entities that are directly or indirectly controlled by the Exchanger or their immediate family. 

    This broad definition ensures that any transaction involving individuals or entities with close personal or financial ties is subject to heightened scrutiny. https://www.accruit.com/blog/video-related-party-rules-1031-exchange”>T… Related Party Rules are designed to prevent potential abuse, such as shifting tax liabilities or inflating property values in ways that undermine the intent of a 1031 Exchange. 
    It’s also important to note that these relationships are closely monitored to ensure the legitimacy of the transaction. If an exchange involving related parties fails to meet the requirements, the transaction may be disqualified, and tax deferral could be denied. Understanding these parameters is essential for Exchangers considering transactions with related parties. 
    The Tax Reform Act of 1984 
    Before the 1980s, Exchangers could potentially conduct a 1031 Exchange with related party real estate to manipulate property values or defer taxes improperly. For instance, two related parties might exchange properties where one has experienced significant appreciation, in order to shift tax liabilities. To address this issue, Congress strengthened the statute. The Tax Reform Act of 1984 introduced critical changes to related party exchanges, implementing safeguards to ensure these transactions were legitimate and not used to evade taxes. 
    Direct Related Party Exchanges 
    The introduction of the two-year holding period under the Tax Reform Act of 1984 fundamentally reshaped the landscape of 1031 Exchanges involving related parties. This rule only applies to a direct swap, which occurs when both parties directly swap properties with one another simultaneously and stipulates that both parties must hold their new properties for at least two years following the transaction. If either party disposes of their exchanged property within the two-year window, the tax-deferral benefit is retroactively revoked, and the original capital gain becomes fully taxable in the year the property is transferred. Again, this rule is only true in a direct exchange between related parties and does not apply if an Exchanger sells their Relinquished Property to a related party or purchases their Replacement Property from a related party. 
    Exceptions to the Two-Year Rule 
    There are specific circumstances where the two-year holding period rule does not apply. One circumstance involves the death of an involved party. If one of the parties involved in the exchange passes away during the two-year period, the rule is waived. Another exception includes situations like eminent domain or natural disasters that force the disposition of a property. For example, the holding period requirement may be waived if a government agency acquires the property for public use or a disaster makes the property unusable. Lastly, the rule does not apply if the IRS determines through an audit that the transaction was not structured to avoid taxes, requiring the Exchanger to demonstrate legitimacy of their intent for the transaction. 
    Relinquished Property to Related Party Considerations 
    Selling Relinquished Property to a related party in a 1031 Exchange is generally more straightforward than other related party scenarios. Unlike direct exchanges, there are no specific holding period requirements if an Exchanger sells their Relinquished Property to a related party in a 1031 Exchange. As long as the sale of the Relinquished Property complies with IRC Section 1031 guidelines, such as proper use for business/investment purposes and adherence to identification and timing rules, it can proceed without any additional considerations. 
    Considerations for Buying Replacement Property from a Related Party 
    Buying Replacement Property from a related party, however, involves stricter requirements. In order for this transaction to qualify under 1031 Exchange rules, the related party selling the Replacement Property must also be conducting a 1031 Exchange. In this case, the Replacement Property being acquired would simultaneously serve as the related party’s Relinquished Property. If the related party is not conducting a 1031 Exchange, the transaction would be disqualified from 1031 Exchange treatment under IRS regulations.  
    Why Related Party Rules Exist 
    The two-year holding period and Related Party Rules from the 1984 amendment were designed to protect the integrity of the tax system. Before these changes, related party transactions in 1031 Exchanges could be misused for tax avoidance. When it applies, the holding period seeks to avoid improper basis shifting between the related parties. For example, consider two related parties: Party A and Party B. Party A owns a property with a low adjusted basis while Party B owns a property with a high basis. If Party A exchanges their property for Party B’s property, Party A transfers their low basis to Party B, avoiding substantial taxation upon sale. Party B could then sell the acquired property after the exchange, incurring minimal taxable gain due to the higher basis, which undermines the intended purpose of a 1031 Exchange.   
    By addressing ambiguities surrounding these exchanges, the amendment boosts confidence in the fairness of the tax code. https://www.irs.gov/pub/irs-pdf/f8824.pdf”>IRS Form 8824 reflects the heightened scrutiny of related party exchanges and outlines steps for Exchangers to ensure compliance. Specifically, lines 7-11 require Exchangers to disclose detailed information about the related party, the nature of the relationship, and whether the Relinquished and Replacement Property(ies) were transferred to/from a related party. These disclosures help the IRS identify potential compliance issues within a related party exchange. 
    Considerations for Related Party 1031 Exchanges 
    For Exchangers considering a 1031 Exchange that involves a related party, here are some key considerations: 

    Plan for the Two-Year Holding Period: Ensure that both you and the related party can hold the exchanged properties for at least two years where it is applicable. Disposing of property before the two-year period will trigger immediate tax consequences. 

    Document the Transaction: Maintain clear records of the exchange, including appraisals, contracts, and any correspondence with the related party. This documentation will be critical if the IRS scrutinizes the transaction.  

    Seek Professional Guidance: Related party transactions are complex and monitored closely by the IRS. To ensure compliance with all regulations, consult tax and legal advisors and work with a Qualified Intermediary like Accruit, who specializes in 1031 Exchanges. 

    By understanding these considerations, Exchangers can confidently navigate the complexities of related party transactions while preserving the benefits of a 1031 Exchange. With careful planning, thorough documentation, and professional support, Exchangers can avoid common pitfalls and achieve a successful investment strategy.  
     
    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.      

  • Understanding Related Party Rules in 1031 Exchanges

    Understanding Related Party Rules in 1031 Exchanges

    There is often confusion surrounding 1031 Exchanges and related parties. A common misconception about 1031 Exchanges is that transactions involving related parties are prohibited. In reality, exchanges involving related parties are allowed, but come with stricter rules and oversight to ensure compliance with the tax code. Another point of confusion is what qualifies as a “related party”. Many assume it applies only to relatives, but the definition extends beyond family to include certain business entities and fiduciary relationships. Understanding related party rules is critical for investors looking to utilize a 1031 Exchange that is compliant with the tax code.
    Who is a Related Party? 
    The Internal Revenue Code provides clear guidelines on who qualifies as a https://www.accruit.com/blog/1031-tax-deferred-exchanges-between-relate… party in 1031 Exchanges. Under Sections 267(b) and 707(b)(1) of the Internal Revenue Code, related parties include: 

    Immediate Family Members: Siblings, spouses, ancestors (parents, grandparents), and descendants (children, grandchildren). 

    Business Entities with Significant Ownership or Control: Entities where the Exchanger holds more than 50% ownership, such as corporations, partnerships, or trusts; two corporations that are members of the same controlled group; and corporations and partnerships with more than 50% direct or indirect common ownership. 

    Certain Fiduciary Relationships: Ex. An Exchanger and the fiduciary of a trust. 

    Affiliated Businesses: Entities that are directly or indirectly controlled by the Exchanger or their immediate family. 

    This broad definition ensures that any transaction involving individuals or entities with close personal or financial ties is subject to heightened scrutiny. https://www.accruit.com/blog/video-related-party-rules-1031-exchange”>T… Related Party Rules are designed to prevent potential abuse, such as shifting tax liabilities or inflating property values in ways that undermine the intent of a 1031 Exchange. 
    It’s also important to note that these relationships are closely monitored to ensure the legitimacy of the transaction. If an exchange involving related parties fails to meet the requirements, the transaction may be disqualified, and tax deferral could be denied. Understanding these parameters is essential for Exchangers considering transactions with related parties. 
    The Tax Reform Act of 1984 
    Before the 1980s, Exchangers could potentially conduct a 1031 Exchange with related party real estate to manipulate property values or defer taxes improperly. For instance, two related parties might exchange properties where one has experienced significant appreciation, in order to shift tax liabilities. To address this issue, Congress strengthened the statute. The Tax Reform Act of 1984 introduced critical changes to related party exchanges, implementing safeguards to ensure these transactions were legitimate and not used to evade taxes. 
    Direct Related Party Exchanges 
    The introduction of the two-year holding period under the Tax Reform Act of 1984 fundamentally reshaped the landscape of 1031 Exchanges involving related parties. This rule only applies to a direct swap, which occurs when both parties directly swap properties with one another simultaneously and stipulates that both parties must hold their new properties for at least two years following the transaction. If either party disposes of their exchanged property within the two-year window, the tax-deferral benefit is retroactively revoked, and the original capital gain becomes fully taxable in the year the property is transferred. Again, this rule is only true in a direct exchange between related parties and does not apply if an Exchanger sells their Relinquished Property to a related party or purchases their Replacement Property from a related party. 
    Exceptions to the Two-Year Rule 
    There are specific circumstances where the two-year holding period rule does not apply. One circumstance involves the death of an involved party. If one of the parties involved in the exchange passes away during the two-year period, the rule is waived. Another exception includes situations like eminent domain or natural disasters that force the disposition of a property. For example, the holding period requirement may be waived if a government agency acquires the property for public use or a disaster makes the property unusable. Lastly, the rule does not apply if the IRS determines through an audit that the transaction was not structured to avoid taxes, requiring the Exchanger to demonstrate legitimacy of their intent for the transaction. 
    Relinquished Property to Related Party Considerations 
    Selling Relinquished Property to a related party in a 1031 Exchange is generally more straightforward than other related party scenarios. Unlike direct exchanges, there are no specific holding period requirements if an Exchanger sells their Relinquished Property to a related party in a 1031 Exchange. As long as the sale of the Relinquished Property complies with IRC Section 1031 guidelines, such as proper use for business/investment purposes and adherence to identification and timing rules, it can proceed without any additional considerations. 
    Considerations for Buying Replacement Property from a Related Party 
    Buying Replacement Property from a related party, however, involves stricter requirements. In order for this transaction to qualify under 1031 Exchange rules, the related party selling the Replacement Property must also be conducting a 1031 Exchange. In this case, the Replacement Property being acquired would simultaneously serve as the related party’s Relinquished Property. If the related party is not conducting a 1031 Exchange, the transaction would be disqualified from 1031 Exchange treatment under IRS regulations.  
    Why Related Party Rules Exist 
    The two-year holding period and Related Party Rules from the 1984 amendment were designed to protect the integrity of the tax system. Before these changes, related party transactions in 1031 Exchanges could be misused for tax avoidance. When it applies, the holding period seeks to avoid improper basis shifting between the related parties. For example, consider two related parties: Party A and Party B. Party A owns a property with a low adjusted basis while Party B owns a property with a high basis. If Party A exchanges their property for Party B’s property, Party A transfers their low basis to Party B, avoiding substantial taxation upon sale. Party B could then sell the acquired property after the exchange, incurring minimal taxable gain due to the higher basis, which undermines the intended purpose of a 1031 Exchange.   
    By addressing ambiguities surrounding these exchanges, the amendment boosts confidence in the fairness of the tax code. https://www.irs.gov/pub/irs-pdf/f8824.pdf”>IRS Form 8824 reflects the heightened scrutiny of related party exchanges and outlines steps for Exchangers to ensure compliance. Specifically, lines 7-11 require Exchangers to disclose detailed information about the related party, the nature of the relationship, and whether the Relinquished and Replacement Property(ies) were transferred to/from a related party. These disclosures help the IRS identify potential compliance issues within a related party exchange. 
    Considerations for Related Party 1031 Exchanges 
    For Exchangers considering a 1031 Exchange that involves a related party, here are some key considerations: 

    Plan for the Two-Year Holding Period: Ensure that both you and the related party can hold the exchanged properties for at least two years where it is applicable. Disposing of property before the two-year period will trigger immediate tax consequences. 

    Document the Transaction: Maintain clear records of the exchange, including appraisals, contracts, and any correspondence with the related party. This documentation will be critical if the IRS scrutinizes the transaction.  

    Seek Professional Guidance: Related party transactions are complex and monitored closely by the IRS. To ensure compliance with all regulations, consult tax and legal advisors and work with a Qualified Intermediary like Accruit, who specializes in 1031 Exchanges. 

    By understanding these considerations, Exchangers can confidently navigate the complexities of related party transactions while preserving the benefits of a 1031 Exchange. With careful planning, thorough documentation, and professional support, Exchangers can avoid common pitfalls and achieve a successful investment strategy.  
     
    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.      

  • The IRS Announces Tax Relief for California Taxpayers Impacted by Wildfires

    The IRS Announces Tax Relief for California Taxpayers Impacted by Wildfires

    Due to California wildfires, the IRS has issued Tax Relief for Los Angeles County. 
    Affected Taxpayers have until October 15, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within Los Angeles County qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief. 
    Who is an “Affected Taxpayer”? 
    An “Affected Taxpayer” includes individuals who live, and businesses whose principal place of business is in the Covered Disaster Area. Affected Taxpayers are entitled to relief regardless of where the Relinquished Property or Replacement Property is located. Affected Taxpayers may choose either the General Postponement relief under Section 6 OR the Alternative relief under Section 17 of Rev. Proc. 2018-58. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for Section 6 General Postponement relief. 
    Relief Specific to 1031 Exchanges for Affected Taxpayers
    General Postponement under Section 6 of Rev. Proc. 2018-58 under Section 6 of Rev. Proc. 2018-58 (Affected Taxpayers only). Any 45-day deadline or 180-day deadline (for either a forward or reverse exchange) that falls on or after the Disaster Date above is postponed to the General Postponement Date. The General Postponement applies regardless of the date the Relinquished Property was transferred (or the parked property acquired by the EAT) and is available to Affected Taxpayers regardless of whether their exchange began before or after the Disaster Date. 
    Relief for Taxpayers with Related Difficulties
    Section 17 Alternative (Available to (1) Affected Taxpayers and (2) other Taxpayers who have difficulty meeting the exchange deadlines because of the disaster. See Rev. Proc. 2018-58, Section 17 for conditions constituting “difficulty”). Option Two is only available if the Relinquished Property was transferred (or the parked property was acquired by the EAT) on or before the Disaster Date. Any 45-day or 180-day deadline that falls on or after the Disaster Date is extended to THE LONGER OF: (1) 120 days from such deadline; OR (2) the General Postponement Date. Note the date may not be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the Relinquished Property (typically, if an extension was filed, 9/15 for corporations and partnerships and 10/15 for other Taxpayers).  
    https://www.irs.gov/newsroom/irs-california-wildfire-victims-qualify-fo… style=”font-size:12.0pt”>Visit for full details on the tax relief for Los Angeles wildfires. 
     
    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. 
     

  • The IRS Announces Tax Relief for California Taxpayers Impacted by Wildfires

    The IRS Announces Tax Relief for California Taxpayers Impacted by Wildfires

    Due to California wildfires, the IRS has issued Tax Relief for Los Angeles County. 
    Affected Taxpayers have until October 15, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within Los Angeles County qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief. 
    Who is an “Affected Taxpayer”? 
    An “Affected Taxpayer” includes individuals who live, and businesses whose principal place of business is in the Covered Disaster Area. Affected Taxpayers are entitled to relief regardless of where the Relinquished Property or Replacement Property is located. Affected Taxpayers may choose either the General Postponement relief under Section 6 OR the Alternative relief under Section 17 of Rev. Proc. 2018-58. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for Section 6 General Postponement relief. 
    Relief Specific to 1031 Exchanges for Affected Taxpayers
    General Postponement under Section 6 of Rev. Proc. 2018-58 under Section 6 of Rev. Proc. 2018-58 (Affected Taxpayers only). Any 45-day deadline or 180-day deadline (for either a forward or reverse exchange) that falls on or after the Disaster Date above is postponed to the General Postponement Date. The General Postponement applies regardless of the date the Relinquished Property was transferred (or the parked property acquired by the EAT) and is available to Affected Taxpayers regardless of whether their exchange began before or after the Disaster Date. 
    Relief for Taxpayers with Related Difficulties
    Section 17 Alternative (Available to (1) Affected Taxpayers and (2) other Taxpayers who have difficulty meeting the exchange deadlines because of the disaster. See Rev. Proc. 2018-58, Section 17 for conditions constituting “difficulty”). Option Two is only available if the Relinquished Property was transferred (or the parked property was acquired by the EAT) on or before the Disaster Date. Any 45-day or 180-day deadline that falls on or after the Disaster Date is extended to THE LONGER OF: (1) 120 days from such deadline; OR (2) the General Postponement Date. Note the date may not be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the Relinquished Property (typically, if an extension was filed, 9/15 for corporations and partnerships and 10/15 for other Taxpayers).  
    https://www.irs.gov/newsroom/irs-california-wildfire-victims-qualify-fo… style=”font-size:12.0pt”>Visit for full details on the tax relief for Los Angeles wildfires. 
     
    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. 
     

  • The IRS Announces Tax Relief for California Taxpayers Impacted by Wildfires

    The IRS Announces Tax Relief for California Taxpayers Impacted by Wildfires

    Due to California wildfires, the IRS has issued Tax Relief for Los Angeles County. 
    Affected Taxpayers have until October 15, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within Los Angeles County qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief. 
    Who is an “Affected Taxpayer”? 
    An “Affected Taxpayer” includes individuals who live, and businesses whose principal place of business is in the Covered Disaster Area. Affected Taxpayers are entitled to relief regardless of where the Relinquished Property or Replacement Property is located. Affected Taxpayers may choose either the General Postponement relief under Section 6 OR the Alternative relief under Section 17 of Rev. Proc. 2018-58. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for Section 6 General Postponement relief. 
    Relief Specific to 1031 Exchanges for Affected Taxpayers
    General Postponement under Section 6 of Rev. Proc. 2018-58 under Section 6 of Rev. Proc. 2018-58 (Affected Taxpayers only). Any 45-day deadline or 180-day deadline (for either a forward or reverse exchange) that falls on or after the Disaster Date above is postponed to the General Postponement Date. The General Postponement applies regardless of the date the Relinquished Property was transferred (or the parked property acquired by the EAT) and is available to Affected Taxpayers regardless of whether their exchange began before or after the Disaster Date. 
    Relief for Taxpayers with Related Difficulties
    Section 17 Alternative (Available to (1) Affected Taxpayers and (2) other Taxpayers who have difficulty meeting the exchange deadlines because of the disaster. See Rev. Proc. 2018-58, Section 17 for conditions constituting “difficulty”). Option Two is only available if the Relinquished Property was transferred (or the parked property was acquired by the EAT) on or before the Disaster Date. Any 45-day or 180-day deadline that falls on or after the Disaster Date is extended to THE LONGER OF: (1) 120 days from such deadline; OR (2) the General Postponement Date. Note the date may not be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the Relinquished Property (typically, if an extension was filed, 9/15 for corporations and partnerships and 10/15 for other Taxpayers).  
    https://www.irs.gov/newsroom/irs-california-wildfire-victims-qualify-fo… style=”font-size:12.0pt”>Visit for full details on the tax relief for Los Angeles wildfires. 
     
    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. 
     

  • 2024 A Year in Review

    2024 A Year in Review

    It is with great excitement that Accruit presents our 2024 Year in Review infographic, a vibrant encapsulation of our remarkable achievements over the past year. This visually engaging infographic highlights the substantial growth across all of our product lines, underscoring our unwavering commitment to innovation and market responsiveness. 
    Moreover, the infographic emphasizes our active involvement in the industry and our dedication to educating various audiences on 1031 exchanges. Through participation in various events, conferences, and workshops, we have shared our expertise and fostered a deeper understanding of tax deferred exchanges, helping clients navigate their complexities with confidence. 
    2024 was a tremendous success. We look forward to another great year ahead, our team will continue to revolutionize the 1031 industry through our innovative solutions and exceptional customer service. 
     

  • 2024 A Year in Review

    2024 A Year in Review

    It is with great excitement that Accruit presents our 2024 Year in Review infographic, a vibrant encapsulation of our remarkable achievements over the past year. This visually engaging infographic highlights the substantial growth across all of our product lines, underscoring our unwavering commitment to innovation and market responsiveness. 
    Moreover, the infographic emphasizes our active involvement in the industry and our dedication to educating various audiences on 1031 exchanges. Through participation in various events, conferences, and workshops, we have shared our expertise and fostered a deeper understanding of tax deferred exchanges, helping clients navigate their complexities with confidence. 
    2024 was a tremendous success. We look forward to another great year ahead, our team will continue to revolutionize the 1031 industry through our innovative solutions and exceptional customer service. 
     

  • 2024 A Year in Review

    2024 A Year in Review

    It is with great excitement that Accruit presents our 2024 Year in Review infographic, a vibrant encapsulation of our remarkable achievements over the past year. This visually engaging infographic highlights the substantial growth across all of our product lines, underscoring our unwavering commitment to innovation and market responsiveness. 
    Moreover, the infographic emphasizes our active involvement in the industry and our dedication to educating various audiences on 1031 exchanges. Through participation in various events, conferences, and workshops, we have shared our expertise and fostered a deeper understanding of tax deferred exchanges, helping clients navigate their complexities with confidence. 
    2024 was a tremendous success. We look forward to another great year ahead, our team will continue to revolutionize the 1031 industry through our innovative solutions and exceptional customer service. 
     

  • Key Considerations for Owning Investment Real Estate in an LLC and Navigating 1031 Exchanges

    Many conversations with real estate investors who call us as an exchange Qualified Intermediary start with an inquiry such as, “My investment property is owned in an LLC. Is there anything special for me to consider regarding my 1031 Exchange?” There are many considerations for issues that arise from real estate owned in an LLC.
    What is an LLC?
    It is common knowledge that “LLC” is an acronym for Limited Liability Company. A Limited Liability Company is a business structure specifically authorized by state statute, and the rules in each state vary. However, there are some commonalities that cross state lines. For example, the owners of the LLC are called “members.” A properly structured and operated LLC protects its members from being personally pursued for any of the LLC’s debts or liabilities. There are two main types of LLCs, single-member LLC and multi-member LLC. A single-member LLC, often abbreviated as “SMLLC”, is a disregarded entity. As a disregarded entity, it is treated as a “pass-through” entity for income tax purposes, and all income and losses are reflected on the member’s personal income tax return. A multi-member LLC is a legal partnership and is itself a Taxpayer that must file its own income tax return. The profits and losses in a multi-member LLC are shared among the members, proportionate to their investments in the LLC. For example, if one member contributed 50% of the start-up capital, another contributed 30%, and the remaining member contributed 20%, the profits and losses will be allocated proportionate to their contributions. Some states offer Series LLCs, which have some economies to offer when multiple LLCs are needed.
    Maintaining LLC Status
    To maintain the protections afforded by the LLC structure, the LLC members must comply with a variety of state rules. Typically, these include holding annual member meetings, paying annual LLC fees to the Secretary of State, maintaining an in state registered agent, keeping business and personal finances separate, avoiding the use of business funds for personal expenses, and complying with the entity’s Operating Agreement. Additionally, Multi-Member LLCs will have an Employer Identification Number (EIN), which is required for the necessary tax reporting for a partnership. A Single-Member LLC is not required to obtain an EIN, but is permitted to do so if the member so chooses. Further, if a real estate acquisition is funded with a bank loan, even for a single-member LLC, banking regulations require that the LLC have an EIN. Failure to comply with the rules the state imposes on LLCs could result in “piercing the corporate veil” and allowing creditors to have access to the members’ personal assets for satisfaction of debts and liabilities.
    Implications of Owning Investment Real Estate in an LLC
    To understand the implications of owning investment real estate within an LLC, the first thing that must be determined is whether the LLC is a single-member or multi-member LLC. This determination is important because of the Same Taxpayer Rule, which mandates that the Taxpayer who sells the Relinquished Property(ies) must be the same Taxpayer that acquires the Replacement Property(ies), and the classification of the LLC plays a role in meeting this requirement. Clarifying whether the LLC is treated as a disregarded entity or separate taxable entity is crucial to ensuring compliance with this rule and avoiding complications in the exchange process.
    At times, further inquiry needs to be conducted by the member(s) or their advisory team to confirm the type of entity. The Operating Agreement created at the time the LLC was formed will provide this distinction. The Operating Agreement contains many provisions including identifying the member(s) and verifying the relative ownership interests among the members, among others. Usually, the Operating Agreement is created when the LLC is formed with the assistance of an attorney or other professional service. However, when investors form LLCs online without professional assistance, or when they reside in states that do not require an Operating Agreement, they may not exist. In the absence of an Operating Agreement, it is best to determine whether the LLC files its own income tax returns or reflects the ownership of the real estate on the member’s personal income tax return. Due to the Same Taxpayer Rule, maintaining the tax continuity of the Exchanger is required, it is necessary to structure the 1031 Exchange consistent with the way the LLC has been filing annual tax returns. If it can be confirmed that the LLC is being treated as a disregarded entity, then the 1031 Exchange can be structured by reflecting the member as the Taxpayer.
    When the Relinquished Property is owned in a Single-Member LLC, a disregarded entity, it gives the Exchanger some additional flexibility in the acquisition of the Replacement Property(ies). This is ideal because many investors often prefer to acquire new properties in a new Single-Member LLC to enjoy the protections afforded by the LLC structure noted above, including liabilities and debts being isolated within the LLC. So long as the same member is the member of the new SMLLC, they are in compliance with the Same Taxpayer Rule. Additionally, a surface level advantage of a SMLLC is that investors often like to name their LLCs to correspond with the property that it owns, i.e., ‘1313 Mockingbird Lane LLC.’ Naturally, the investor would not want to acquire 1428 Elm Street in the name of 1313 Mockingbird Lane LLC. Since 1313 Mockingbird Lane LLC is a disregarded entity, the investor can acquire the Replacement Property under 1428 Elm Street LLC without jeopardizing the 1031 Exchange. The important thing to note is that owning both the Relinquished and Replacement Properties in a SMLLC provides for ongoing protections afforded by the LLC structure.
    As noted above, a Multi-Member LLC is a tax partnership, and its own unique Taxpayer. When a Multi-Member LLC owns the property, the 1031 Exchange is to be set up under the name of the LLC. For example, when the members of 4 Privet Drive LLC want to sell their current investment property, their options for purchasing Replacement Property are somewhat limited because of the Same Taxpayer Rule. They could acquire the Replacement Property in the name of 4 Privet Drive LLC, which wouldn’t make much sense if they are acquiring 1630 Revello Drive. In addition, using the old LLC to hold the new property might make the new LLC liable for claims that may come up in regard to the old property ownership. However, because they wish to maintain the protections of the LLC structure, while also changing the way the new property is held, a new LLC, 1630 Revello Drive LLC, could be created to take title in that name, if 4 Privet Drive LLC is the sole member of the new entity.
    1031 Exchange Involving Multi-Member LLCs
    Sometimes when property is held within a Multi-Member LLC not all members have the same opinion of what they want to do with their portion of the sale proceeds. One possibility is where all members of the LLC want to go their separate ways, each doing their own 1031 Exchange. That results in what would be called a “drop and swap”, where all members drop their LLC interest to a Tenants-In-Common interest and complete their own 1031 exchanges. Much has been written about the drop and swap strategy, and its relative merits in the 1031 exchange context.
    However, if multiple members are willing to stay inside the LLC, even though one party wishes to leave, there are other options. Consider a three-member LLC, where each member owns 1/3 of the membership interests, but one member wishes to leave. In this situation, Three Friends LLC could allow one member to leave in exchange for a 1/3 Tenant-in-Common interest in the real estate, while the other two members remain inside Three Friends LLC. At closing, the departing member takes their respective share of the proceeds while Three Friends LLC continues and completes its 1031 Exchange with 2/3 of the proceeds. Note that this is a simplified statement of how the structure changes, and investors considering this should consult with their tax and legal advisors prior to initiating an exchange.
    Adding members to the LLC also has multiple possible outcomes. If the LLC is already a partnership, then admitting additional members does not change anything for 1031 Exchange purposes. There are accounting issues that the accountant would normally address. However, if the LLC was a single-member LLC, which is being treated as a disregarded entity, then adding a new member creates a partnership, which cannot be a disregarded entity. This situation often arises when one spouse has premarital investment property, and they are now wanting to structure a 1031 Exchange and add their spouse as a partner on the Replacement Property. For example, when Gomez was single, he bought his current investment property and the title is vested in Addams Realty Holdings LLC, of which he is the sole member. Now that he is contemplating a 1031 Exchange, Morticia wants to be a member of the LLC so that she has ownership interests in the Replacement Property. This should not be done, as it would convert the disregarded entity into a partnership, creating a new Taxpayer. It should be possible to change to a partnership when some time has passed from the exchange transaction. It is best to consult with the tax adviser to determine the appropriate amount of time.
    Community Property States
    Community property laws dictate how property is owned and managed between spouses in certain states. These laws establish that all assets acquired during the marriage are considered jointly owned by both spouses, regardless of whose name is on title. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. These laws impact 1031 Exchanges for LLCs owned by married couples who live in those states. According to IRS Revenue Procedure 2002-69, if the LLC is properly formed, its only members are a married couple who reside in a community property state, and the couple elected to treat the LLC as a disregarded entity for federal tax purposes, the IRS will recognize it as disregarded. This allows flexibility for spouses residing in a Community Property state who are involved in a 1031 Exchange. to treat the LLC as a disregarded entity for federal tax purposes, the IRS will recognize it as disregarded. This allows flexibility for spouses residing in a Community Property state who are involved in a 1031 Exchange.
    In looking at the example above, if Gomez and Morticia live in a community property state, Gomez could add Morticia as a member of Addams Realty Holdings LLC without jeopardizing the LLC’s status as a disregarded entity. This means their 1031 Exchange could proceed with the same LLC even though Morticia will be added as a member of the LLC.
    As discussed, owning investment real estate in an LLC can add an additional layer of complexity when a 1031 Exchange is being considered. When structuring a 1031 Exchange involving real estate vested in an LLC or being bought in the name of an LLC, additional care must be taken to ensure compliance with the 1031 Exchange rules. Exchangers are encouraged to consult with their tax and legal advisors before the move forward with the sale or purchase of investment real estate, and to engage a Qualified Intermediary like Accruit, before the first closing that will be part of their 1031 Exchange.
     
    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.