Tax Planning Uncertainty – Click here to read about the Buffet Rule and other recent tax proposals.

Tax Planning Certainty – Click here to see an example of the differences in taxes owed from selling appreciated property in 2012 and 2013, versus exchanging and paying no taxes.

1031 Basics: 45/180 Day Calculator

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…

Proposed IRS Regulations re: Certain REIT and RIC Transfers

On April 13, 2012, the IRS released proposed regulations under IRC Section 337(d) providing guidance about certain transfers of property from a C Corporation to a real estate investment trust (REIT) or regulated investment company (RIC). These proposed regulations provide favorable treatment for such property transfers if the transfer qualifies for tax deferral under either IRC Section 1031 or IRC Section 1033.  Read more…

IRC Section 1033 Involuntary Conversion Case

IRC Section 1033 permits a taxpayer to defer taxation when their property has been taken through involuntary conversion. In a recent case, a San Diego, California owner sold property to a private developer under threat of eminent domain by the City of San Diego, and invested the proceeds in a replacement property pursuant to the requirements of Section 1033. The property owner applied to the County to transfer the Proposition 13 base year value to the replacement property, but the County denied this request because even though the sale was under threat of eminent domain, the property was sold to a public entity. In Duea v. County of San Diego, the court agreed with the County and held that since the sale was not to a public entity, the property owner was not entitled to have the Proposition 13 base value transferred to the property the owner acquired. Read more…

Side Effects of Cost Segregation

Increased current cash flows and net present value savings from accelerated tax depreciation are benefits of a cost segregation study. The decision to have cost segregation performed will have later tax side effects, both positive and negative. This article in the Journal of Accountancy explores some of the tax benefits and drawbacks linked to the use of cost segregation that can materialize in subsequent periods, including the interplay with 1031 exchanges. Read more…

The important point to realize is that each of the aforementioned approaches have unique issues which must be understood and addressed early on. Some of the problems include:

1) Problems meeting the 180-day exchange period deadline due to the inability to control the closing of the purchase. This is a common problem, particularly with short sales. Prudent exchangers will minimize this risk by taking full advantage of the 45-day identification rules. In short, you are on the seller’s time schedule, not on yours.

2) These transactions often have rigid structures. As such, you may have difficulty complying with 1031-specific requirements, including contract assignability and deeding flexibility. Often, sellers in these situations are not willing to respect the need for slight modification to their “procedure” to effectuate a technically valid 1031 exchange.

3) In the case of courthouse step purchases, advanced planning is necessary, as cashier’s checks must accompany the winning bid at the time of the purchase. You will not know what the final winning bid figure will be, therefore it is prudent to have multiple cashier’s checks in appropriate increments ready. Of course, all cashier’s checks must be immediately returned to API if you are not the winning bidder.

Many of the aforementioned problems can be overcome with advanced planning and creative structuring. In many cases, the use of an Exchange Accommodation Titleholder (EAT) can allow for creative techniques such as using exchange proceeds for capital improvements after the replacement property has been acquired, and acquiring multiple properties before or after the relinquished property has been closed.

For the full article on Distressed Property Acquisitions in 1031 Exchanges, read more…

1031 Basics: IRS Form 8824 Like-Kind Exchanges

The tax filing date for many taxpayers is just around the corner. The Internal Revenue Service Form 8824, Like-Kind Exchanges, must be completed and filed with the IRS every time a taxpayer performs a 1031 exchange. The IRS Form 8824 contains three sections related to a 1031 exchange: Part 1, Information on the Like-Kind Exchange; Part II, Related Party Exchange Information; and Part III, Realized Gain or (Loss), Recognized Gain, and Basis of Like-Kind Property Received. To access Form 8824 and other related tax forms that may be needed, download now…

Court Rules Real Estate Investment Strategy Not Eligible for Patent Protection

The issue in the Fort Properties Inc. v. American Master Lease LLC case was whether a method related to a real estate investment technique for replacement property acquired in certain 1031 exchanges was eligible for patent protection. The method involved aggregating real property, encumbering it with a Master Agreement, and then issuing ownership shares to multiple tenant-in-common (TIC) investors with deedshares. American Master Lease LLC described its investment strategy in a patent application, and Fort Properties claimed that American Master Lease’s strategy was unpatentable. The U.S. Circuit Court of Appeals for the Federal District ruled this investment strategy was not patentable. Read more…

Capital Gains Taxes Going Way Up in 2013

58 Percent Increase in Capital Gain Taxes is Coming

The Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010 extended the Bush era tax cuts until the end of 2012. Beginning January 1, 2013, if no further action is taken by Congress, the capital gains tax rate will revert from the current 15 percent rate back to the former 20 percent that was in effect prior to 2003. In addition, the national health care reform legislation that became law March 2010, imposes a new 3.8 percent tax on certain investment imcome. Read more…

IRS Guidance on the Economic Substance Doctrine

Do Not File Your 2011 Income Tax Return Until Your Exchange Has Been Fully Completed

If you are currently in a 1031 exchange that began in 2011, the time in which you must complete the acquisition of your replacement property ends at midnight on the earlier of the 180th day after the date you transferred the relinquished property, OR the due date (including extensions) for your income tax return for the taxable year in which the transfer of the relinquished property occurs. U.S. Treasury Regulations section 1.1031(k)-1(b)(2)).

This means that if the 180th day following the closing of your first transfer of relinquished property falls after the due date for your 2011 tax return (generally, for individuals, April 17, 2012) and you have not completed the acquisition of your replacement property, you must file an Application for Extension of Time with the IRS to extend the filing date to the 180th day. If you do not file for an extension, your time period will end on your tax return due date.

April 15th is Only Weeks Away: Read a Few Quips About Taxation

The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing. – Jean Baptiste Colbert

America is a land of taxation that was founded to avoid taxation. – Laurence J. Peter

What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin. – Mark Twain

Single-Family Rentals: It’s Time to Get Back In

Warren Buffet, often referred to as “the Oracle of Omaha”, recently stated on a CNBC Squak Box Interview “…if I had a way of buying a couple hundred thousand single-family homes…I would load up on them and…take mortgages out at very, very low rates…it’s a leveraged way of owning a very cheap asset now and I think that’s probably as attractive an investment as you can make now.” To learn more about why institutional investors and others are acquiring single family rentals, read more…

Many investors are seeing signs of increased inflation in the near future. For example, commodity prices, as measured by the Standard & Poor’s GSCI, are up about 7 percent in the past year. Food prices have increased by about 20% over the same period. According to the Federal Bureau of Labor Statistics, a pound of ground beef went from an average of $2.23 per pound to $2.77 over the past two years, which represents an annual increase of 12%. Similarly, the price of butter has increased 27% and coffee has increased 16%. Finally, energy prices are around $4/gallon in many places in the country. Given the signs of inflation, what options are available to real estate investors to hedge against a depreciating dollar?

For the full article on Real Estate and Inflation, read more…

1031 Basics: Useful Forms for Tax Preparation

The tax filing date for many taxpayers is less than two months away. IRS Form 8824, Like-Kind Exchanges, must be completed and filed with the Internal Revenue Service every time a taxpayer performs a 1031 exchange. This form has three sections related to a 1031 exchange: Part 1, Information on the Like-Kind Exchange; Part II, Related Party Exchange Information; and Part III, Realized Gain or (Loss), Recognized Gain, and Basis of Like-Kind Property Received. To access Form 8824 and other related tax forms that may be needed, download now…

IRS Releases the Dirty Dozen Tax Scams for 2012

The Internal Revenue Service issued its annual “Dirty Dozen” ranking of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

The following are the Dirty Dozen tax scams for 2012: Read more…

Revenue Procedure 2012-17

Rev. Proc. 2012-17 provides the requirements for furnishing substitute Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., in electronic format. A partnership (including an Electing Large Partnership, as defined in section 775 of the Internal Revenue Code) that follows the procedures set forth in this revenue procedure will satisfy the requirements of section 6031(b) of the Internal Revenue Code and section 1.6031(b)-1T(a)(1) of the Income Tax Regulations. Read more…

IRS Guidance on the Economic Substance Doctrine

The economic substance doctrine was codified in Section 7701(o) of the Health Care and Education Reconciliation Act. The new statute defines economic substance doctrine under which certain tax benefits are not allowable if the transaction does not have economic substance or lacks a business purpose. The statue defines a transaction as having economic substance only if: (A) the transaction in a meaningful way (apart from the Federal income tax effects) changes the taxpayer’s economic position, and (B) the taxpayer has a substantial purpose (apart from the Federal income tax effects) for entering into such transaction. Read more…

“I cook with wine and sometimes I even add it to the food.” —W.C. Fields

People have enjoyed vineyards and wine for thousands of years. With demand increasing, prospective vintners are buying up vacant land and planting grapes. When sold, many of these vineyards are suitable properties for a tax deferred 1031 exchange. The sale of a vineyard or winery may include several different types of property that qualify for tax deferral in a 1031 exchange, including:

1. The land associated with the vineyard itself;

2. The facilities and outbuildings that are a part of the wine making operations, including the caretaker’s
house, wine tasting facility or other property used in the wine operations;

3. Water rights (if treated as a real property interest under local law); and

4. Equipment and other personal property used in the production of wine.

For the full article on 1031 Exchanges of Vineyards, read more…

1031 Basics: The Delayed Exchange

This one-page checklist addresses what important things should be done before closing on the sale of a relinquished property, the 45 day identification deadline, and the 180 day exchange period deadline, in a logical and easy to understand step-by-step format. For the complete Delayed Exchange Checklist, download now…

IRS and Treasury Department Publish Temporary Regulations
on Treatment of Tangible Property

The Internal Revenue Service and Treasury Department published temporary regulations that provide guidance to taxpayers on the treatment of amounts paid to acquire, produce or improve tangible property and regarding the accounting for, and dispositions of, property subject to depreciation. Read more…

Want To Be a Landlord? There’s an App For That

Tiny Tower is an iPhone game. Judging from the loyal following the game is attracting, it’s fun to be a landlord! Tiny Tower puts you in charge of a mixed residential and commercial tower. You can build and furnish additional floors to attract “bitizens” (residents) and then manage their daily affairs. It’s that interaction with the residents and their needs that makes the game so popular. Read more…

National Taxpayer Advocate Delivers Annual Report to Congress;
Focuses on IRS Funding and Taxpayer Rights

A National Taxpayer Advocate, Nina E. Olson, recently released her annual report to Congress, and she identified the combination of the IRS’s expanding workload and declining resources as the most serious problems facing taxpayers. The result, the report says, is inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance. The annual report noted a concern that the IRS’s expanding use of automated processes to adjust tax liabilities is causing harm to taxpayers and recommended that Congress enact a comprehensive Taxpayer Bill of Rights. Read more…

Asset Preservation is now in its 22nd year of business and I am proud of our accomplishments. I am constantly in awe of my associates who continually strive to be the best in our industry and provide excellent customer service. In the past months, the investment real estate market has gained ground, and has received some welcomed positive press. Thankfully, we have also seen an increase in 1031 exchange activity over the second half of 2011 as our clients have taken advantage of many excellent purchase opportunities. I am very optimistic and excited for what’s ahead in 2012 and the opportunities in the market.

With my most sincere thanks and gratitude, I wish you a joyous Holiday Season and much success in the New Year!

Javier G. Vande Steeg President

To Defer in 2011 or Postpone, That is the Question

The final month of a tax year is often the last window of opportunity to implement tax planning that can help maximize tax savings. Along these lines, initiating a new 1031 tax deferred exchange before the end of 2011 can provide real estate investors with significant tax benefits.To read about some possible advantages of this tax strategy, read more…

1031 Basics: The Delayed Exchange

Most exchangers take advantage of the delayed exchange format which, provides considerable flexibility in the time involved to identify property and ultimately purchase a desirable replacement property (or properties). To learn more about the steps involved in the delayed exchange process, read more..

Revised 1099-B Form Simplifies Capital Gain Calculation on Sale of Securities

Starting in 2011, for securities purchased after January 1, 2011, financial institutions must now report cost or other basis in box 3 of the newly revised Form-1099-B and note in box 8 whether the gain is short-term or long-term. Prior to this year, financial institutions were only required to report the sale side of transactions to the taxpayer and the IRS, essentially requiring only the date of sale and net proceeds received. It used to be up to the taxpayer and their tax advisor to determine the cost basis and holding period of securities sold. Read more…

Year-End Tax Tips from the IRS

Watch a video from the IRS’s YouTubeChannel about suggestions for taxpayers at the end of the year, watch now…

Summary of State Level Tax Exemptions & Withholding Rules re: §1031

Under Section 1031 of the Federal Tax Code (26 U.S.C. § 1031), property held for investment or use in a trade or business can qualify for tax deferral of the capital gain taxes ordinarily due upon sale. Many states also impose a state tax after real property is sold. To help ensure the state collects this tax from a non-resident seller, some states have chosen to collect the estimated tax due at closing and this arrangement is called a mandatory state withholding. Some states assign the responsibility for collecting the withholding tax to the buyer while other states may require the closing agent or qualified intermediary (“QI”) withhold this state tax. The amount of the withholding varies from state to state with some choosing to collect a straight percentage of the sales price and others requiring the withhold amount be a percentage of the net proceeds. The payment of this state tax may result in “boot” in an exchange transaction since the withhold amount may not be applied to the purchase of a replacement property.

Some states allow for an exemption to the mandatory withholding when a seller intends to complete a 1031 exchange. We have included a summary of the current exemptions and withhold requirements by state. Read more…

1031 Basics: What’s the First Step?

Many real estate investors contemplating performing a 1031 exchange want to know the initial steps involved in the exchange process. Every exchanger should always review their proposed 1031 exchange transaction with their tax and/or legal advisors in advance. To learn more and obtain the suggested 1031 exchange language that should be included in the Purchase and Sale Agreement, read more..

Morton v. United States, No. 08-804C (Fed. Ct. 2011)

The accidental transfer of exchange proceeds to a taxpayer by the relinquished property closer, followed by the immediate return of funds by the taxpayer, does not constitute actual or constructive receipt. Since the taxpayer had signed all exchange documents and complied with all requirements of the qualified intermediary safe harbor which he had control over, the taxpayer was not penalized for the mistaken actions of a third party. Read more…

Tax Court Decision on the 750 Hour Material Participation Rule

A recent Tax Court decision, Todd and Pamela Bailey v. Commissioner TC Summary Opinion 2011-22 (3/2/11), addresses the situation of a taxpayer deducting passive losses on rental real estate against nonpassive income and the 750 hour material participation rule for qualifying as a real estate professional under the passive activity loss rules. The Tax Court determined that the taxpayers did not meet the 750 hour material participation threshold. Read more…

Exchanges of Fishing Licenses/Permits

A 1031 exchange of a fishing permit/license for another fishing permit/license qualifies for tax deferral regardless of whether the permit is for a different fishery, different type of fishing gear or a different species of fish. Read more…

Assume an investor is selling a Renoir for $2 million that was purchased for $500,000 and thus has $1.5 million of gain. After the investor consults with her tax advisor, she determines she will owe approximately $420,000 in capital gain taxes based upon the 28% capital gain rate for the sale of the Renoir absent a 1031 exchange. However, if she sets up a 1031 exchange before closing on the Renoir sale, all of the capital gain taxes can be deferred. This leaves the investor with $2 million of equity and she would have $2 million to reinvest in other artwork, rather than $1,580,000 after-taxes, thus maximizing her purchasing power and having the benefit of future appreciation in value on the full $2 million.

For more information, click here: 1031 exchanges of artwork.

1031 Basics: Closing Costs

A frequently asked question is “What expenses can be deducted from the exchange proceeds without resulting in a tax consequence?” Although the IRS has not published a complete list of qualifying expenses, there are some rulings that provide general parameters. For an overview of items that are exchange expenses click here: 1031 exchange closing costs.

Beware of the Fine Print in the 180 Day Exchange Period Rule

For certain exchangers, the exchange period can be shorter than 180 calendar days if the sale of a relinquished property closes on or after October 20, 2011, but on or before December 31, 2011. Learn more about how you can get the benefit of the full 180 day exchange period even if the relinquished property closes during this critical time period.

Review Year-End Tax Planning Opportunities

This information was provided by J.H. Cohn: When the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed by President Obama in December 2010, it not only included extensions through 2012 to many expired provisions and created clarity regarding 2011 tax rates and rules, but also prompted tax planning opportunities regarding deductions, deferred income, and enhanced estate planning, among other benefits. Among the opportunities individual taxpayers may be in a position to take advantage of:

• Leverage Standard Deduction by “Bunching” Deductible Expenditures
• Consider Deferring Income
• Time Investment Gains and Losses and Consider Being Bold about It
• Take Advantage of Generous—But Temporary—Business Tax Breaks Under §179
• 100 Percent First-Year Bonus Depreciation Opportunities Exist

Click here to access information prepared by J.H. Cohn on these tax topics.

Recorded Webinar: 1031 Exchanges in the New Economy

>> Instantly listen to a recording of the recent one hour webinar “1031 Exchanges in the New Economy: How Investors and Real Estate Professionals Can Benefit from Trends in 2011” by clicking on Listen Now.

Under Section 1031, cash or other non-like kind property actually or constructively received by the taxpayer in a tax deferred exchange (commonly referred to as “boot”) causes the taxpayer to recognize gain to the extent of such boot. In some cases, taxpayers seek to avoid taking boot on the sale of relinquished property by borrowing against the relinquished property shortly before the exchange. Ordinarily, a taxpayer’s receipt of loan proceeds is not taxable, but if the taxpayer borrows against the relinquished property in a cash-out refinance shortly before an exchange rather than simply taking sale proceeds on the sale of the relinquished property, does the taxpayer avoid recognition of gain? Maybe.

Since the only significant difference between taking boot on the sale of relinquished property and borrowing against the same property before the exchange is the tax result (in each case, the taxpayer pockets the cash received), the Internal Revenue Service (IRS) has asserted the “step transaction doctrine” in an attempt to combine the pre-exchange borrowing with the exchange in cases where it determines that tax avoidance was the taxpayer’s principal motivation. The basic idea behind the step transaction is that the tax results of a series of steps in a transaction should be determined based on the overall result of a transaction if those steps are interrelated. Thus, the key issue is whether two or more transactions should be viewed as separate steps for tax purposes or combined into a single integrated transaction for tax purposes. Since a cash-out refinancing in anticipation of a tax deferred exchange will usually be paid off on the sale of the relinquished property, it may be difficult to establish that financing had an independent purpose apart from the tax result. Although the IRS has not always won these cases (in fact, it often loses), the principles described in the following cases should be considered when a taxpayer assesses the risks associated with a cash out refinancing in anticipation of a tax deferred exchange.

In Fredericks v. Commissioner, T.C. Memo 1994-27, the taxpayer’s cash out refinancing was not treated as boot because the refinancing was (i) independent of the 1031 exchange (ii) not conditioned on the closing (iii) dependent on the creditworthiness of the taxpayer and (iv) made sufficiently in advance of the 1031 exchange. Arguably, if one or more of these requirements is not met, the IRS may successfully argue that the proceeds of pre-exchange financing constitute taxable boot. The Fredericks court found it significant that the taxpayer had been trying to refinance the property during the two year period prior to the sale. See also PLR 8434015 in which the IRS ruled that the proceeds of a taxpayer’s proposed refinancing shortly before an exchange would constitute taxable boot in the exchange. In each case, the independence of the refinancing was the critical factor. For another analysis of this issue, see Behrens v. Commissioner, T.C. Memo 1985-195.

In several cases and rulings, taxpayers have successfully defended pre-exchange financings where the purpose of the financing was to even-up the debt on the relinquished property with debt to be assumed by the taxpayer on the replacement property. See Garcia v. Commissioner, 80 T.C. 491 (1983) (replacement property seller increased mortgage on replacement property acquired by taxpayer in the exchange); PLR 8248039 (permitted the netting of a new mortgage on the replacement property against the existing debt on the relinquished property); PLR 9853028, (taxpayer’s mortgage paid off by buyer netted against liability incurred by the taxpayer in acquiring replacement property).

In short, a taxpayer’s reason for refinancing shortly before an exchange should include significant non-tax objectives independent of the anticipated exchange transaction. The timing of the transaction in relation to the exchange is another important consideration as discussed in Fredericks.

Refinancing the replacement property is less risky. To read more about post-exchange refinancing, click on Refinancing Replacement Property.

1031 Basics: Simultaneous Exchanges

The simultaneous exchange is the oldest method of performing an IRC §1031 tax deferred exchange. There are basically three ways to perform a simultaneous exchange: two-party trade (swap), a three-party exchange and simultaneous exchange with a Qualified Intermediary. For an overview of the advantages and disadvantages of each approach, Continue reading.

New Guidance on 100% First-Year Depreciation: Rev. Proc. 2011-26

Certain taxpayers may qualify for postponement of the exchange deadlines for a variety of reasons including the relinquished or replacement property being located in a Presidentially declared disaster area or where the principal place of business of a party to the transaction is located in a covered disaster area. Taxpayers can also qualify by satisfying other criteria. The IRS has recently issued extensions for certain taxpayers in parts of New York, New Jersey, North Carolina, Pennsylvania-Irene, Pennslyvania-Lee, Puerto Rico, Texas and Vermont. Visit the irs.gov website to learn more.

Defer Taxes and Reach Retirement Goals

OMG…MY BFF SAVED $$$ WITH 1031!

Short sales, foreclosures and deed-in-lieu transfers of distressed real estate have potential tax implications for the transferor and can present an investment opportunity for the transferee. To learn more about the benefits of a §1031 transaction involving the disposition of distressed real estate, see 1031 Exchanges in a Foreclosure: Sometimes Your Loss Really is Your Gain.

From the viewpoint of the secured bank lender, the receipt of the real estate pledged as collateral for the borrower’s repayment obligation is a payment event. If the lender acquired the note at a significant discount, the receipt of the collateral can generate a capital gain if the value of the real estate exceeds the lender’s investment in the secured note. If the collateral is worth less than the investment in the note (as is usually the case), the difference generates a loss. The loss is characterized for income tax purposes as an ordinary loss if the lender is actively engaged in the business of lending. A private party that is not in the business of lending will realize a capital loss.

If the collateral is not sold to a third party in a foreclosure sale, the lender ends up taking ownership of the collateral which is classified under GAAP rules as “other real estate owned” or REO property. Since a regulated bank is not in the business of owning and managing real estate assets, bank regulations generally require that the bank dispose of REO property expeditiously but in accordance with prudent business judgment. The accounting standards governing the disposition of REO Property are set forth in Financial Accounting Standards No. 66 relating to Accounting for Sales of Real Estate. To satisfy regulators, banks must maintain documentation evidencing sales efforts.

Some analysts have suggested that banks are intentionally holding REO property on their books at unrealistically high values. If a bank sells its REO property at a loss, the bank must recognize the actual loss which affects its balance sheet and reserve requirements. By timing the sale of REO property, the bank may be able to manage its balance sheet until the real estate market improves or that the bank’s balance sheet is otherwise able to absorb the loss. Although the exact number of properties taken back by lenders remains unknown, some recent estimates put the number as high as 7 million REO properties. As such, some banks today are operating their portfolios of REO properties much like the investor owners they foreclosed on.

Can a Bank Sell an REO Property to Complete a Tax Deferred Exchange?

A fundamental requirement of a tax deferred exchange is that both the relinquished property sold and the replacement property acquired be held by the taxpayer for investment or for use in a trade or business. Section 1031(a)(2)excludes property held by the taxpayer primarily for sale. Property held for sale is generally classified as inventory under tax accounting rules. REO Property is just that, inventory held by a bank for sale and would not qualify as held for investment. Even if REO property could be characterized as held for investment, however, the need to acquire replacement property is inconsistent with bank regulations requiring the bank to liquidate REO property. Of course, real estate owned by the bank for use in its trade or business, such as the bank’s headquarters or branch offices is not inventory and may be exchanged for other like kind property using Section 1031. As always, it is important to consult with an experienced tax advisor to evaluate the tax ramifications of a proposed tax deferred exchange.

1031 Basics: Contract Language

Although many Exchangers include language in their Purchase and Sale Agreement establishing their intent to perform an exchange, it is not required by the Internal Revenue Code. It is important, however, that the Purchase and Sale Agreements for both the relinquished and replacement property are assignable. To learn more, click on 1031 Exchange Contract Language.

New Financial Reform Bill & Federal Regulation of Qualified Intermediaries

President Obama has signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”). The wide reaching legislation is intended to strengthen the financial system and to provide a margin of safety in the event of a future economic downturn. Among its many provisions, and of particular interest to us, the Act creates a Bureau of Consumer Protection within the Federal Reserve Bank (“Bureau”). The Bureau is tasked with regulating financial products and services offered to consumers. Under the provisions of the Act, the Bureau must conduct a study and propose legislation designed to regulate qualified intermediaries who facilitate tax deferred exchange transactions under Internal Revenue Code §1031. The study must be completed with one year after the new law takes effect with proposed regulations completed during the two year period following completion of the study.

Asset Preservation, Inc. (“API”) recognizes the need for national standards providing for the regulation of qualified intermediaries and welcomes the enactment of the Act. Although API has consistently provided its customers with excellent service and the highest level of security available in the 1031 exchange industry, the recent failures of several established exchange intermediary companies is a stark reminder of the need for regulation in the exchange industry.

While we wait to see the Bureau’s new regulations, API’s exchange counselors, attorneys and accountants stand ready to work with you to facilitate your tax deferred exchanges. We continue to maintain tight financial controls and multi-layered security systems necessary to provide a level of comfort and the quality of performance relied on by sophisticated investors and Corporate America. Give us a call and discover “The API Advantage™.”

PLR Addresses Related Party Exchange Transaction

In PLR 201027036, which involves a foreign corporation, the IRS notes in this PLR that Section 1031(f)(4) did not apply when a relinquished property is transferred to a related person and subsequently the related person disposes of the relinquished property within two years. Click on PLR 201027036 to view the full text.

Virginia Exchange Facilitators Act

The Virginia Exchange Facilitators Act became effective July 1, 2010. This new law provides Virginia exchange clients new protections including the requirement that exchange funds must be held in separately identified accounts with all withdrawals being authorized by both the exchange client and the Qualified Intermediary. To read a summary of the new law, click on New Virginia QI Law or click on Virginia Exchange Facilitators Act to read the full text of this law.

Asset Preservation”s 20th Anniversary

Click this link to read a message from Asset Preservation Co-Founder and President, Javier G. Vande Steeg, and to learn more about Asset Preservation”s industry leading experience, expertise and security.

FOOTNOTES:
* Depreciation Recapture: $200,000 x 25% = $50,000; Remaining Federal Capital Gain: $300,000 x 15% = $45,000; State Taxes: $500,000 x 9.3% = $46,5000 Total Capital Gain Taxes = $141,500; After-Tax Proceeds Available: $500,000 – $141,500 = $358,500
** Today’s inordinately low rates of return for money market accounts, bank CDs and other liquid investments tilt the consideration in favor of exchanging.

This example is for education and illustrative purposes only and is not meant to provide the details for any specific portfolio or rates of return. Accordingly, you should review the details of your specific transaction with your own legal or tax advisor.

1031 Basics: Like-Kind Property – Where Located

Real property held for investment in the United States must be exchanged for other real property held for investment in the United States. Exchangers cannot exchange United States property for foreign property or visa versa. Click on Like-Kind Property – Where Located to learn more.

Farmland Values Continue to Rise

From FarmlandInvestorCenter.com: Newly released Federal Reserve surveys note farmland values continued to rise in the second quarter, but at a slower pace. Midwest farmland inflated at a 17% annual pace through the second quarter, according to the Fed. Buyer demand appears strongest in Indiana and Iowa, where values climbed 20% or more on a year-over-year basis through June. Across the Plains, cropland values climbed 2%-4% in the second quarter and remain 20% above last year”s levels, notes the Fed. Buyer demand appears strongest in Nebraska, where cropland values are 30% above a year ago; weakest in drought stressed Oklahoma where cropland values are up 10.5% vs. last year. Texas non-irrigated cropland values are rising at a 5.5% annual pace; irrigated cropland prices are inflating at 11%, according to the Federal Reserve. For more information, visit: farmlandinvestorcenter.com.

Tax Relief for Victims of Storms and Floods

Certain taxpayers may qualify for postponement of the exchange deadlines for a variety of reasons including the relinquished or replacement property being located in a Presidentially declared disaster area or where the principal place of business of a party to the transaction is located in a covered disaster area. Taxpayers can also qualify by satisfying other criteria. The IRS has recently issued extensions for certain taxpayers in parts of Missouri, Montana and Nebraska. Visit the irs.gov website to learn more.

Webinar: 1031 Exchanges in the New Economy

Title: 1031 Exchanges in the New Economy: How Investors and Real Estate Professionals Can Benefit from Trends in 2011 Date: Wednesday,September 7, 2011 Time: 9:00 a.m. – 10:00 a.m. PST (12:00 p.m. EST) Register NowThis cutting edge webinar, presented by Scott Saunders, Sr. Vice President, provides the latest information on 1031 exchange trends in 2011, creative “like-kind” property alternatives and essential qualified intermediary due diligence. This webinar will discuss tax saving strategies to take advantage of some of the best investment purchase opportunities in decades. To reserve your webseat, click on >Register Now.>> Instantly listen to a recording of the recent one hour webinar “1031 Exchanges in the New Economy: How Investors and Real Estate Professionals Can Benefit from Trends in 2011” by clicking on Listen Now.