OUR THOUGHTS ON:

1031 Exchange Tax Strategies

Construction

By Ryan Broze

The Schneider Downs Construction and Real Estate Industry Group hosted a seminar titled, “Using 1031 Exchange Tax Strategies To Defer Capital Gains in 2011.” Pierre Priestly, JD and Scott Nathanson, Esq. of IPX 1031 Exchange Investment Property Exchange Services, Inc. provided the attendees with great insights and examples of how to structure various transactions to qualify under the IRC Section 1031 rules.

Many forms of property can utilize the like-kind exchange strategy; however, real estate has the potential to benefit the most from the like-kind exchange law. IRC Section 1031 was not intended to draw any distinction among parcels of real property regardless of how dissimilar they may be in attributes. Consequently, virtually any parcel of real property is of a like kind with any other parcel of real property as long as the interest in the property given up and the property received are of similar character of nature.

Other notable types of property available for like-kind exchange treatment discussed at the presentation included:

  • Mineral rights
  • Aircraft
  • Railcars
  • Franchise rights
  • Business use personal property

Highlights of the IRC Section 1031 rules discussed included:

  • Exchanged property must be in the same general asset class, product class and/or of a like kind in nature and character;
  • Multi-party exchanges can be structured to qualify for like-kind exchange by utilizing a qualified intermediary;
  • Replacement property must be identified within 45 days;
  • The purchase of the replacement property must be completed within 180 days from the sale of the originating property, or the due date of the taxpayer tax return, whichever is earlier; and
  • Proceeds from the sale of the property must be placed in a qualified escrow to avoid “constructive receipt".

Structuring a successful like-kind exchange can be a complicated process. Details of these procedural requirements are beyond the scope of this article. If the tax-deferral benefits of a like-kind exchange are of interest to you, please consult your Schneider Downs representative for further assistance and for information regarding the requirements necessary to properly structure a like-kind exchange transaction.

For more information, please contact Ryan Broze.

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