Properties involving mixed uses (combining personal use and business use) can be exchanged under Section 1031. The portion of the property used as business use will qualify for tax deferral treatment under Section 1031. Depending on its use, the portion of the property used for personal use may qualify for the $250,000 ($500,000, if married filing jointly) primary residence exclusion (under Section 121, also known as the Home Sellers’ Exemption). Additionally, you can acquire a property that would have mixed uses. Some examples of properties that may have mixed uses are owner-occupi ..read more

As the seasons change and summer is in the rearview mirror, we long for the warmer weather and our feet in the sand at the beach. It’s also when renters begin searching for the perfect beach rental for next summer. The ability to work remotely has created a greater demand for beach rentals, which has driven up rental rates, making beach properties a desirable investment.  A 1031 exchange is a century-old tax strategy to defer gain when selling business use or investment property and reinvesting in another. In addition to deferring the state and federal gain, investors can also defer the r ..read more

The Exchange Process from Start to Finish Back to basics: As the Qualified Intermediary (QI), 1031 CORP.’s role is to facilitate the exchange process and make it easy for you to complete your 1031 exchange. Among other steps, 1031 CORP. will prepare the necessary exchange documentation, coordinate the exchange details with all parties, keep you aware of the timing requirements, hold the proceeds from the sale, and answer any questions throughout the exchange process. The principle behind Section 1031 is the continuous investment in like-kind real property. A 1031 exchange allows you to defer c ..read more

To meet the same taxpayer requirement of Section 1031, and for an exchange to qualify, title to the replacement property must be taken the same way it was held on the relinquished property. This rule applies to any taxpayer, from an individual to an entity such as a partnership, LLC, trust, or corporation. Since an exchange is considered a continuation of the original investment in the relinquished property, title must reflect that continuation on the replacement property. As with many rules, however, there is one exception: the use of a disregarded entity for tax purposes. In a ..read more

A “Simple Fix” for Primary Residence Sales Could Help Housing Woes “Due to the significant tax bills they would face, far fewer older homeowners are selling their residences to downsize or move to retirement facilities, increasing demand and prices and leaving fewer homes available for younger home buyers to purchase,” said Kenny Parcell, 2023 President, National Association of REALTORS® (NAR). Prohibitive tax bills on large capital gains on primary residence sales are impacting the residential market, contributing to issues of housing affordability, inventory available to the market, and a ho ..read more

Smart Strategies Can Accomplish “Trade Down” Goals. To satisfy 1031 exchange requirements and maximize the deferral, an exchange taxpayer must purchase a replacement property of equal or greater value and equity. Miss either of these criteria and you have a “trade down” and proceeds that become a taxable liability, known as “boot.” However, you can use tax strategies to accomplish your ultimate goals, whether to have cash to improve the replacement property, pay a tax bill, diversify a real estate portfolio, leverage debt, or afford another expense.  If the need for cash is the driving th ..read more

Commercial real estate owners, developers, and investors have many tools at their disposal with which to develop a strong tax strategy. In addition to the stable of well-known strategies, the last few years have seen many expanded programs designed to incentivize real estate development. Two great examples are the 1031 exchange and accelerated depreciation, also known as cost segregation. Up until 2017, these two long-standing strategies have typically been mutually exclusive endeavors, as a byproduct of the 1031 process is a low step-up basis, which mitigates the effectiveness of cost segrega ..read more

Big news for Pennsylvania! House Bill 1342 was signed by Governor Tom Wolf on July 8th and codified the tax deferral benefit of like-kind exchanges beginning in the 2023 tax year. Known as a 1031 or like-kind exchange, Section 1031 of the Internal Revenue Code allows the deferral of gain on the exchange of real properties held for business use or investment. Currently, except for the Commonwealth of Pennsylvania, all states with an income tax regime follow the federal tax code or have adopted their own version of Section 1031. For residents of Pennsylvania or non-residents selling pr ..read more

Buyers can use 1031 exchanges to help their neighbors  The National Multifamily Housing Council reports that, in the U.S., undersupply of housing has led to a decline of 4.7 million affordable apartments between 2015-20201. The competition for that attainable rental housing has increased the share of cost-burdened American households paying more than 30 percent of their income for housing to nearly 37 percent in 20212. As an option for residential investment property owners at all economic levels, the benefits of 1031 exchanges extend beyond tax deferral and wealth creation for landlords ..read more

The IRS is Strict on Timing Deadlines  The saying says, “Time waits for no one,” and the IRS takes it seriously when approving a 1031 exchange. Strict timing requirements are explicit in the tax code for Section 1031 like-kind exchanges. Three events are primary considerations for your 1031 success:   A 1031 exchange must be initiated with the Qualified Intermediary (QI) before the first property closes. 1031 CORP. serves as the QI. Exchangers must identify replacement properties by midnight of the 45th day. An exchange must be completed by the 180-day deadline, closed on all r ..read more