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22
Feb

1031 Exchanges Under Attack! Help Support the Real Estate Industry Now

Paul Ryan (WI), the Chair of the House Ways & Means Committee, has said he intends to pass a tax reform bill through the House prior to the Congressional recess in August. It appears he is considering adopting aspects of Dave Camp’s recent tax reform bill, which included a proposal to completely eliminate Section 1031 tax deferred exchanges. The Senate Finance Committee Chair, Orrin Hatch (UT), is also working on a tax reform bill, and he is looking for input by the end of April. The bottom line is that the real estate investment economy would be negatively affected if 1031 exchanges are eliminated.

If You Benefit from the Ability to Exchange Investment Property, the 1031/Investment Real Estate Industry Needs your Help Now

Like-kind exchanges benefit millions of American investors and businesses every year by encouraging businesses to expand, and by moving dollars within the U.S. economy. Without the tax deferral benefit that 1031 exchanges provide, reinvestment by small- and medium-sized businesses would be inhibited, real estate values would decline, and the U.S. economy would suffer. The repeal of Section 1031 could cause a decline in real estate values as investors are motivated to invest in more liquid, non-real estate investments with faster returns. The repeal of Section 1031 would impose a targeted tax increase on economically sound commercial real estate investment.

Congress Threatens to Eliminate 1031 Exchanges

TAKE ACTION!

Contact your congressional representatives and send a message to Congress that Section 1031 provides a powerful economic tool for stimulating the economy.

Voice your support for 1031 exchanges

VOICE YOUR SUPPORT FOR 1031 EXCHANGES

Also, if you belong to local industry trade organizations connected to real estate investment transactions (i.e. local Commercial Board of Realtors, State Real Estate Association, CCIM, NAIOP, BOMA, SIOR, Real Property and Tax Section of your local Bar Association, Escrow Associations, Real Estate Investment Associations, etc.) and want to receive more information to share with your fellow members, please contact Scott Saunders at scott@apiexchange.com or 888-531-1031. We will provide information on proposals to eliminate 1031 exchanges, and on what you can do to voice your support for Section 1031.


Parking the Relinquished Property (Reverse ‘Exchange First’ Format)

Reverse 1031 Exchange

Asset Preservation has an experienced team in our Commercial Division with many years of expertise and experience handling technical “Parking Arrangements” including reverse exchanges. When a 1031 exchange requires the purchase of a replacement property before the sale of the relinquished property, a reverse exchange is the solution. The IRS released Revenue Procedure 2000-37 which provides a “safe harbor” for exchangers to perform a reverse exchange.

Click on these links to learn more about Reverse Exchanges and Parking the Relinquished Property.
For questions about reverse exchanges, email API’s Reverse Department at reverse@apiexchange.com.


1031 Basics: 45/180 Day Calculator

1031 Basics

From the closing on the sale of the relinquished property, an exchanger must: (1) properly identify potential replacement properties within 45 calendar days (the “Identification Period”) and; (2) close on the replacement property(ies) within 180 calendar days of the transfer of relinquished property sale (the “Exchange Period”). To access a calculator and determine your 45 day Identification Period and 180 day Exchange Period, click here…


21
Jan

President Obama’s Proposed Tax Increases

Use 1031 Exchanges to Purchase More Property

President Obama, in his State of the Union address on January 20th, outlined a number of tax increase proposals that his Administration projects would raise $320 billion in new revenue. Two of the President’s proposals would, if enacted, have a significant impact on real estate investors:

  • Increase Capital Gain Tax Rate: The President has proposed increasing the top capital gain tax rate from 20% to 28%. Under current law, many real estate investors in the top tax bracket face an additional 3.8% tax on Net Investment Income under IRC Section 1411, resulting in a total tax rate of 23.8%. Under the President’s proposal, this would increase to 31.8%.
  • Eliminate Stepped Basis at Death: Under current tax law, when a taxpayer dies, the taxpayer’s heirs receive a step-up in the basis of inherited property. The basis is stepped up to the fair market value of the asset on the date of death. President Obama has proposed eliminating this stepped-up basis, which will result in the built-in gain remaining in the property after it passes to the heirs. Although the President has proposed some small exclusions ($200,000 on general asset gains and $500,000 for a taxpayer’s primary residence), eliminating the stepped-up basis would seriously impact the heirs of investors who die with appreciated assets.

Tax Planning Certainty – 1031 Exchanges

Tax strategies which take advantage of the current tax code are a much better way to achieve tax benefits today. IRC Section 1031 tax-deferred exchanges have been a part of the tax code since 1921. Section 1031 allows an investor who holds property for investment purposes, or for use in a trade or business, to defer all four (4) levels of potential capital gain taxes (federal capital gain, federal depreciation recapture, net investment income, and state capital gain) by exchanging for qualifying like-kind property under Section 1031. By deferring the capital gain tax, an investor has significantly more purchasing power and better overall investment returns.

Let’s compare the tax treatment for the sale of an investment property between: (i) paying all the taxes owed, or (ii) using a 1031 exchange to defer 100% of the taxes owed. We will assume the property has total capital gain of $1,300,000, $300,000 of which is from depreciation recapture, and $1,000,000 of which is from asset appreciation. For this example, we will assume this is a California investor who has a 13.3% state tax rate, and we will assume the investor is also paying the 3.8% net investment income tax (NIIT) on the entire capital gain:

Depreciation Recapture $300,000 X 25% = $75,000
Federal Capital Gain Taxes $1,000,000 X 20% = $200,000
Net Investment Income Taxes $1,300,000 X 3.8% = $49,400
CA State Taxes $1,300,000 X 13.3% = $172,900

Total Taxes Owed:      $497,300
Sell in 2015, Pay Taxes:      $497,300 in taxes
Exchange in 2015, Defer Taxes:      $0 (no taxes owed)

 

Replacement Property Purchase Comparison – Sale vs. Exchange

Assume the investor in the previous example sold the relinquished property for a total net sales price of $2,000,000, with, as stated above, $1,300,000 of total capital gain. Assume the investor intends to apply the sales proceeds toward a 25% down payment on a replacement property, with conventional financing for the remaining 75% of the replacement property purchase price. We will compare how much property the investor who sells and pays all the taxes can purchase, versus how much property the investor who exchanges and defers 100% of the capital gains tax can purchase.

Sell in 2015 and Pay Taxes: ($2,000,000 – $497,300) = $1,502,700 X 4 = $6,010,800
Exchange in 2015 and Defer Taxes: ($2,000,000 – $0) = $2,000,000 X 4 = $8,000,000

 

By taking advantage of a 1031 exchange, the investor defers all taxes thus preserving their net sales proceeds for the purchase of better performing replacement property. In this comparison, the investor who exchanges versus sells is able to purchase a replacement property worth considerably more ($8,000,000 versus $6,010,800).

In times of economic and tax uncertainty, it is important to utilize the tax advantages currently available in the tax code. Call the experts at Asset Preservation to discuss 1031 exchanges and your investment property situation.

Customize It

1031 Basics: Requirements For Full Tax Deferral

1031 Basics

How much replacement property must I acquire in my tax deferred exchange in order to defer all of my capital gains tax? In our experience, some investors often confuse 1031’s requirement for tax deferral with their estimates of their potential capital gain. To learn what is required for full tax deferral in a 1031 exchange, click on Requirements for Full Tax Deferral.


Congress Threatens To Eliminate 1031 Exchanges

Congress Threatens to Eliminate 1031 Exchanges

Three separate tax reform proposals have been advanced by the House Ways and Means Committee, the Senate Finance Committee and the Treasury Department to either repeal or restrict tax deferral of gain from Section 1031 exchanges of like-kind property.

Like-kind exchanges benefit millions of American investors and businesses every year. 1031 exchanges encourage businesses to expand and help keep dollars moving in the U.S. economy.

Without the tax-deferral benefit that 1031 exchanges provide, small and medium sized businesses would not be as equipped to reinvest in their businesses, real estate values would decline, the U.S. economy would suffer, and businesses of all sizes would lose the opportunity to expand. The repeal of Section 1031 will cause a decline in real estate values as investors will be motivated to hold on to properties and to invest in more liquid, non-real estate investments with faster returns. The proposals effectively impose punitive and targeted tax increases on economically sound commercial real estate investment, the likely unintended consequence of which will be similar to implementation of 1986 tax reform modifications that resulted in a recession.

Tak Action Now!
Send a strong message to congress that 1031 exchanges are a powerful economic tool. Learn more and voice your opposition to these proposals with these critical actions at www.1031taxreform.com.


From Forbes: Best Buy Cities and Where To Invest In Housing In 2015

If you are an investor wanting to purchase rental properties, there are many places where housing should perform well. The key is to buy in cities with strong job growth that people are moving to, so that the stock of potential tenants for would-be landlords is abundant. Forbes teamed up with Local Market Monitor, a North Carolina-based data company that tracks home prices and economic factors in more than 300 housing markets, to find 2015’s Best Buy Cities—the top 20 housing markets to invest in this year. Read More…


America’s Best Performing Cities in 2014

The knowledge and energy hubs of San Francisco and Texas are among the year’s biggest economic winners. Read More…


2014 National Movers Study Shows Top Moving Destinations

2014 National Movers Study Shows Top Moving Destinations

United Van Lines 38th Annual Movers Study results track the migration patterns state-to-state during the course of the past year. The study found that Oregon was the top moving destination of 2014. To see the other top moving destinations, Read More…


Where Wall Street is Most Likely to Cash Out of the Single Family Rental Market

After nearly three years and hundreds of thousands of property purchases, the nascent single family rental industry is at a crossroads in terms of future growth and long-term staying power. Many are wondering how many of the players will “cash out” of their property portfolios given the strong home price appreciation over the past few years — and if so how that liquidation would impact local markets with a high density of single family homes purchased as rentals. Read More…


1031 Exchange Resources

Open a 1031 ExchangeOpen an Exchange

1031 Exchange Materials1031 Materials

1031 Exchange NewsPast
eNewsletters

1031 Exchange Webinar and PodacatWebinar/Podcast


05
Dec

Happy Holidays from Asset Preservation

 Happy Holidays From API’s President 

To all of our Clients and Associates,

Happy Holidays! As 2014 winds down, I must say that it has been quite a year. 2014 brought us enormous transactional volume, iconic U.S. property exchanges, art and collectible activity, and a resurgence in activity in the “alternative investment” market for replacement property. Both the residential and commercial property markets were extremely active as investors took advantage of newly found appreciation, and utilized 1031 exchanges to enhance their real property investment positions. All said, it was a very good year for all of us in the investment property market.

As I look forward to 2015, I see much of the same growth and prosperity, with one important caveat: the real estate industry saw a serious attack on Section 1031 exchanges as part of tax reform in 2014. Congress and President Obama have put forth three separate proposals which either completely eliminate or restrict tax-deferred 1031 exchanges. If 1031 exchanges are eliminated, obviously this would be detrimental to real estate investors, and would negatively affect the economy and many ancillary real estate-related services. If you would like to learn more and to consider adding your voice to the efforts to repeal 1031 exchanges, please visit www.1031taxreform.com.

I want to thank our long-term customers, and those customers who have worked with Asset Preservation for the first time this year. As we enter our 25th year of providing excellent service and the highest level of security for exchange proceeds, we are very grateful for the opportunity to be your qualified intermediary of choice. I wish you a safe and joyous Holiday Season and I look forward to working with you again in 2015.

Javier G. Vande Steeg


Javier G. Vande Steeg, President


 Do You Have A Property Closing in December? 

Rush Deal

Many investors and their advisors have real estate transactions closing near the end of December. If you or your client have an investment property transaction closing before the end of 2014 – and you have not already set up a 1031 exchange – keep in mind Asset Preservation is available to set up your exchange at the last minute! We can often set up a new 1031 exchange, converting an otherwise taxable sale into a tax deferred transaction, within an hour. A properly structured exchange provides an investor with up to 45 calendar days to potentially find suitable replacement property. For more information, please call us toll-free at 800-282-1031 or via email at info@apiexchange.com.


 2014 Year-End Tax Planning 

Exchanges Over Two Tax Years May Be Treated As An Installment Sale

In a delayed exchange transaction structured to satisfy the requirements of §1031, an exchanger has up to 180 calendar days to acquire like-kind replacement property measured from the day the relinquished property is sold. Once initiated, the delayed exchange may be successfully completed (resulting in complete tax deferral), partially completed (resulting in recognition of some capital gain) or it may fail if no like-kind replacement property is acquired (resulting in the recognition of all capital gain generated by the sale). If the exchange begins in one tax year and extends into the subsequent tax year, the question arises whether the gain realized on the sale is recognized in the year in which the relinquished property was sold or in the subsequent year in which the exchanger received the cash sale proceeds from the qualified intermediary.

In a perfect world, gain would be recognized in the subsequent year when the proceeds were actually received by the exchanger. In many cases, this turns out to be wholly or partially true. Read More…

Call Us

Home Prices Forecasts for 2015

To see housing forecasts for 2015 from Fannie Mae, Merrill Lynch, MBA, NAHB, NAR, Wells Fargo and Zillow, Read More…


 Dispositions Of Tangible Property 

Recently, the IRS issued final regulations on dispositions of tangible depreciable property under Sec. 168 (T.D. 9689) that are generally effective for taxable years beginning on or after January 1, 2014. Taxpayers can realize significant benefits from these regulations by identifying building components that have been replaced or demolished in current or prior years. Read More…


 Congress Threatens To Eliminate 1031 Exchanges 

Congress Threatens to<br />
                                        Eliminate 1031 Exchanges

Three separate tax reform proposals have been advanced by the House Ways and Means Committee, the Senate Finance Committee and the Treasury Department to either repeal or restrict tax deferral of gain from Section 1031 exchanges of like-kind property.

Like-kind exchanges benefit millions of American investors and businesses every year. 1031 exchanges encourage businesses to expand and help keep dollars moving in the U.S. economy.

Without the tax-deferral benefit that 1031 exchanges provide, small and medium sized businesses would not be as equipped to reinvest in their businesses, real estate values would decline, the U.S. economy would suffer, and businesses of all sizes would lose the opportunity to expand. The repeal of Section 1031 will cause a decline in real estate values as investors will be motivated to hold on to properties and to invest in more liquid, non-real estate investments with faster returns. The proposals effectively impose punitive and targeted tax increases on economically sound commercial real estate investment, the likely unintended consequence of which will be similar to implementation of 1986 tax reform modifications that resulted in a recession.

Take Action Now!
Send a strong message to congress that 1031 exchanges are a powerful economic tool. Learn more and voice your opposition to these proposals with these critical actions at 1031taxreform.com.


 Call Us! 

Asset Preservation would appreciate the opportunity to work with you on your next exchange regardless of how simple or complex. Give us a call at 800-282-1031 with any 1031 related questions you may have.  Or to open a 1031 exchange online, email us at info@apiexchange.com.

Call Us

 The College Town Effect On House Prices 

Clear Capital has a new report showing college towns unique immunity to boom-bust-bubble cycle. According to the firm’s Home Data Index Market Report, metropolitan statistical areas (MSAs) with noteworthy university influence boast home price trends that far outperform the national rates of growth since 2004. Read More…


 1031 Exchange Resources 

Open a 1031 ExchangeOpen
an Exchange

1031 Exchange Materials1031
Materials

1031 Exchange NewsPast
eNewsletters

1031 Exchange Webinar and PodacatWebinar/Podcast