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By KATHERINE RIVERA, for e-1031mls.com 8/26/2007

Exceptions to this rule do apply under certain circumstances. "Tax preference items" are preferences existing in the Code to greatly reduce or eliminate regular income taxation. Real estate investors can generate a positive cash flow in one of two ways, either pre-tax or post-tax. Thus the 1031 exchange tax strategy 'swap' till you drop may have merit. Personal property can also be exchanged for other personal property of like-kind or like-class. 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.

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In a reverse exchange, the best way to do this is with borrowed funds. Clearly, this is a sticky situation because the accommodation party will typically want full indemnification from the taxpayer for all liabilities associated with the replacement property during the time that the accommodation party "owns" it, and only the most benevolent taxpayer will allow the accommodation party to profit during the parking period, particularly at the taxpayer's ultimate expense. Because of tax advantages to the seller, structuring the sale might, however, make the buyer's offer more attractive. This suggests that a sharp run-up in house prices is due in part to irrational expectations, and thus signals a future correction as prices ultimately reflect market fundamentals. If your property has declined in value or you have losses from other sources that can offset the capital gain on the sale of your property, then a tax-deferred exchange would not be a good idea. Upon the expiration of the exchange period or the sale of the relinquished property and transfer of the replacement property to the Exchanger, the Exchanger assumes the loan. You will then have proof of receipt from a government agency.The total amount of the investment allocated to the equipment Tangible Drilling Costs (TDC) is 100% tax deductible. However, you will most likely still have the pay the QI their fee.

Explaining exchanges

A 1031 exchange makes it possible for investors to sell and buy property of like kind while deferring tax consequences. The Exchanger then has 45 days to identify one or more relinquished properties. One can imagine the problems of financing and trusting the acquaintance, not to mention the tax risks. Usually done through the reverse exchange last structure, in which the EAT makes the improvements within the 180 day exchange period, the construction exchange affords taxpayers the opportunity to use tax-free dollars while building or improving new property.IRS rules control the length of time that the replacement property must be held before it may either be sold or used to enter into a new tax deferred exchanged. Our intermediary services are fast and economical. If - in addition to the exchange proceeds - construction financing is required to complete the improvements, the EAT will become the borrower under a non-recourse note and deed of trust.

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