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Adaptive paths: exchange

By CALVIN KNIGHT, for e-1031mls.com 8/20/2007

Generally, to qualify as "like kind" the relinquished and replacement depreciable personal property must be in the same General Asset Class or Product Class. In March 2002, the IRS released Revenue Procedure 2002-22 to address fractional ownership interests as replacement property in a like-kind exchange. If you cannot purchase property of higher value, there is still a good possibility that some of your taxes can be deferred. The 1031 Tax Exchange Expert offers you a more comprehensive and strategic 1031 tax exchange, which follows due diligence. By mid 2007, Aviva Life may be in the market as well. The great advantages are the large number of properties available and both the size of the TIC interest and the date for closing are very flexible. Our sole function is to provide a staff of highly trained professionals available to discuss exchange strategies, as well as preparing accurate documentation supporting all forms of tax deferred exchanges (ie: simultaneous, delayed, construction, reverse and personal property exchanges). This is a tax deferred exchange; it allows you to sell one rental property and buy another one without paying any taxes on the sell of that property.

What about exchange?

The lessee is a real estate ownership and management company with an established history of commercial real estate experience. It is also not available for entities owning more than 1,000 barrels of oil (or 6,000,000 cubic feet of gas) average daily production. In an exchange, all proceeds from the sale of property are available to purchase other property. Always contact your tax advisor when attempting a 1031 Exchange. Sometimes referred to as a "Starker Trust", a 1031 Exchange is a transaction in which an owner of property held for investment is allowed to sell one or more properties and purchases one or more properties without a tax consequence. A Section 1031 tax deferred exchange allows business and investment real estate property owners to exchange their current property for another business or investment property, of like kind, and defer their capital gains taxes.

Summary

Limited partnerships and properties in which you own less than 10 percent are excluded. "Tax preference items" are preferences existing in the Code to greatly reduce or eliminate regular income taxation. Even for those transactions that don't qualify for the safe harbor, the IRS no-inference rule leaves the door open for other arrangements. You can also exchange a working or royalty interest for other real estate. The old law also contained an once-in-a-lifetime, $125,000 exclusion ($62,500 if single, or married and filing a separate return) of gain from the sale of the primary residence. The results confirm that commercial mortgage loan underwriters operate with a five-year horizon in creating the equity cushion needed to protect themselves against interest-rate risk. This does not apply when transferring from mineral interest to mineral interest, only when going to hard real estate. Certain REIT characteristics may allow some REITs to outperform others.

More tic questions

You can purchase either working interest or royalty interest in oil and gas wells with money that you otherwise would have paid in taxes. If depreciation were claimed on a property, the maximum capital gains tax liability would be 25 percent to the extent depreciation was claimed. Section 1031 of the code provides that no gain or loss shall be recognized for tax purposes on the exchange of property held for productive use in a trade, business, or for investment. 1031 exchanges are almost exclusively used in real estate, but they can be used for other types of assets as well. This constructive receipt precludes the Investors ability to engage in a successful tax-deferred like-kind exchange transaction. In the case of expenditures in connection with the rehabilitation of a unit of railroad rolling stock (except a locomotive) used by a domestic common carrier by railroad which would, but for this subsection, be properly chargeable to capital account, such expenditures, if during any 12-month period they do not exceed an amount equal to 20 percent of the basis of such unit in the hands of the taxpayer, shall, at the election of the taxpayer, be treated (notwithstanding subsection (a)) as deductible repairs under section 162 or 212. "Alternative Minimum Taxable Income" generally consists of adjusted gross income, minus allowable Alternative Minimum Tax itemized deduction, plus the sum of tax preference items and adjustments.Revenue Procedure 2000-37 makes it clear that the total time of the exchange cannot be more than 180 days. You aren't expected to be a tax expert or to give tax advice, but you are expected to know who to contact for the answers.

Tic 101

Many investors who own a property with low or no debt use debt to trade up to a more valuable property with better cash flow and potential depreciation benefits. Then the proceeds from the sale of the relinquished property are deposited by the Qualified Intermediary to purchase the replacement property.Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. Oil and Natural gas from domestic reserves helps to make our country more energy self-sufficient by reducing our dependence on foreign imports. In highly appreciating markets, people may take the opportunity of selling their personal residence where no capital gain is due below $250,000 for a single person or $500,000 for a married couple and moving into a former rental property for a specified time period in order to turn it into their new personal residence, and thus avoid capital gains taxes.

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