Thanksgiving is an opportunity to realize that we have much for which we can be thankful. All of us at Asset Preservation, Inc. (API) thanks every customer, closer/escrow officer, real estate professional, and legal/tax advisor that has worked with API as a Qualified Intermediary. We deeply value each and every opportunity to provide industry leading service and security on your 1031 exchange transactions. We wish you a very Happy Thanksgiving!
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?
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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…