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06
Apr

Recent Related Party Case – U.S. Court Of Appeals

U.S Court of Appeals Affirms Trial Court Decision in Favor of the IRS

In the recent case of North Central Rental & Leasing, LLC ex. Rel. Butler v. United States, 2015 WL 855725 (U.S.C.A. 8th Cir., March 2, 2015), the U.S. Court of Appeals affirmed the decision of the trial court in favor of the IRS in denying a taxpayer’s deferral of tax under Section 1031. This case involved two related companies (one of which was the subsidiary of the other), and a like-kind program exchange of construction equipment and machinery.

The transactions involved the subsidiary company, as the exchanger, conveying machinery and equipment to a Qualified Intermediary (QI), who then sold the relinquished property to an unrelated third party. The parent company then purchased from the manufacturer the equipment and machinery identified by the subsidiary as replacement property, because the parent could acquire the property from the manufacturer on more favorable terms than the subsidiary. The subsidiary then purchased the machinery and equipment from the parent as the subsidiary’s replacement property to complete the exchange.

The court determined that this strategy allowed the two related companies to cash out of the investment in equipment in a manner that would not be possible if this was accomplished solely by the subsidiary company. The court deemed the transactions unnecessarily complex, and attributed that complexity to a desire to sidestep IRC Section 1031(f).
 Read more…


Ernst And Young Study Supports 1031 Exchanges

According to a recent Ernst and Young Study, The Economic Impact of Repealing Like-Kind Exchange Rules, the study finds that repeal of Section 1031 results in less federal revenue, shrinks the economy by $8.1 billion, discourages investment, negatively impacts the overall economy with an unfair concentration in certain industries, burdens certain businesses and taxpayers and is at cross-purposes with the goals of tax reform. The analysis finds that repeal of the like-kind exchange rules would increase the cost of capital in the economy, even when combined with lower tax rates. The higher cost of capital is found to discourage business investment which adversely affects the overall economy.

Repealing Section 1031 would subject businesses that rely on these rules to a higher tax burden on their transactions, resulting in longer holding periods, greater reliance on debt financing, and less productive deployment of capital in the economy. Many affected businesses are in pass-through form, which would not receive a benefit if the revenue from repeal of like-kind exchange rules is used to finance a lower corporate income tax rate. For an overview of this study, click on this link, Ernst and Young 1031 Exchange Study Overview.

Take Action – Contact Your Representatives

Contact your congressional representatives using the link below and send a message to Congress that Section 1031 provides a powerful economic tool for stimulating the economy. It only takes one minute to voice your support for 1031 exchanges.

Voice your support for 1031 exchanges

VOICE YOUR SUPPORT FOR 1031 EXCHANGES

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Top 20 Real Estate Markets

Industry experts from the Urban Land Institute (ULI) and PriceWaterhouseCoopers (PWC) release their projections for the top 20 housing markets with lower costs of living and better than average employment prospects. Read More…


Best And Worst States To Be A Taxpayer

Want to know which states have the most and least burdensome tax rates? WalletHub analyzed how state and local tax rates compare to the national median in the 50 states comparing eight different types of taxation in order to determine: 1) Which states have the highest and lowest tax rates; 2) how those rates compare to the national median; 3) which states offer the best tax rates when adjusted by the cost-of-living index. Read More…


Call Us

Call Asset Preservation

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 to open a 1031 exchange.  Or to open a 1031 exchange online, email us at info@apiexchange.com.

API is committed to providing its exchange customers with unmatched service, and the highest level of security available in the 1031 exchange industry. From the customer’s first contact with an API representative, API’s professional exchange counselors, attorneys and accountants work together to meet the customer’s service needs in order to ensure a smooth transaction with no surprises. In the background, API’s management maintains tight financial controls and multi-layered security systems necessary to provide a level of comfort and performance quality relied on by sophisticated investors and corporate America; we call it the “The API Advantage™.”


Attend A Complimentary 1031 Exchange Webinar For CPE Credit

Title: 1031 TAX DEFERRED EXCHANGE ISSUES IN 2015
Presenter: Scott Saunders, Asset Preservation, Inc.

Course Description
This one-hour webinar covers critical IRS time deadlines in delayed exchange, like-kind requirements including creative property variations like easements and personal property exchanges, partnership/LLC scenarios (and how to best structure in advance of a 1031 exchange), reverse and improvement exchanges, related party transactions and how to avoid common pitfalls and other 1031 exchange related issues. This webinar will provide a summary of current developments regarding possible tax reform and the implications for 1031 exchanges and addresses applicable Revenue Rulings, PLR’s and other recent IRS guidance on current issues related to exchanges.

Course Details:
Date: Friday, May 1, 2015
Time: 8:00 a.m. – 9:00 a.m. (PST)
Cost: Free
CPE Credits: 1.0 hour (Accountants & CPAs)

View Details and Registration Info at cpaacademy.org


America’s 13 Hottest U.S. Housing Markets

America’s 13 Hottest U.S. Housing Markets

With a good supply of land and a growing demand for new housing, these five up-and-coming cities will be some of the most lucrative areas for home builders in the next few years. Read More…


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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.

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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.


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…


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