Avoid Taxable Boot in a 1031 Closing
Tips to Prevent an Unexpected Tax Bill
We've all sold properties and are tempted to postpone paying expenses until closing when we can have the closing officer put them on the closing statement and just pay them from the sale proceeds. Unfortunately, when effecting a 1031 tax-deferred exchange, anything other than routine closing costs could trigger a taxable event.
The Qualified Intermediary (QI) will provide the closing officer with instructions to make sure the transaction is documented as a 1031 exchange and not a taxable sale. Whenever possible, the QI always tries to review the closing statement prior to closing to address any potential red flags in advance of closing. More importantly, the QI wants to make sure the Exchanger does not receive or have rights to any of the exchange funds either directly or indirectly which create a taxable event.
Click here for tips to help you avoid an unexpected taxable event because of charges paid with 1031 exchange funds.
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Tax Reform & 1031 Exchanges
Legislative Update
There are no updates to report on how section 1031 might be affected by potential tax reform. We will continue to keep you updated. For those who have sent letters to your Congressional leaders, thank you for your support. It is certainly appreciated!
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Carryover Basis and Depreciation
Impact of a 1031 Exchange
Basis of Replacement Property
The basis of the replacement property is lowered by the deferred gain. Essentially, the old basis is carried to the new property and increased by any additional property value acquired.
Depreciation of the Replacement Property
The basis of the replacement property acquired in a 1031 exchange is generally the same as that of the relinquished property less any cash received plus any gain recognized. Notice 2000-4 clarified how MACRS replacement property in a 1031 exchange should be depreciated. The MACRS replacement property should be treated in the same manner as the MACRS relinquished property with respect to your basis in the replacement property provided it does not exceed the adjusted basis in your relinquished property. The replacement property is depreciated over the remaining recovery period, and using the same depreciation method and convention as that of the relinquished property. Any excess basis in the replacement property is treated as newly acquired MACRS property. There will generally be at least two different depreciation schedules in place on one asset. Notice 2000-4 applies to properties placed into service on or after January 3, 2000. T.D. 9115 (2/27/04) is a clarification of Notice 2000-4 and gives you the option to elect out of this depreciation treatment.
Your tax advisor can help you determine the basis of your replacement property and the best way to depreciate it.
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Trending this Month...
Resort Area Homes
After years of only occasionally seeing a transaction involving a resort area home, we have clients buying and selling them all over the place again. Many are taking advantage of the opportunity to trade up. Of course, vacation homes usually do not qualify but you could certainly use the home as a rental for two years and safely convert into your dream vacation home. Learn how.
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Join us for our complementary Wealth Building Webinar Series designed to help you build and preserve wealth. Click on the link below for webinar descriptions and to register.
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Message from our President
| Margo McDonnell |
Dear Friends,
I am sure I am not the only one wondering how summer flew by so quickly! For those of us in the Philadelphia area, we have not hit 90� since July 21st and we are wondering what weather autumn might bring. One thing is certain for 1031 CORP., this is not your usual August. Traditionally, business slows in August but not this year - not even on Friday afternoons! We are definitely not complaining as we are truly grateful for the opportunity and excited to help so many defer gain and accomplish their investment goals.
Enjoy the last few days of summer and wishing you a nice Labor Day weekend!
Best Regards,
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About 1031 CORP.
Serving as a nationwide qualified intermediary for 1031 tax-deferred exchanges since 1991, 1031 CORP. strives to provide a superior exchange experience for our customers and their advisors. We provide our customers with enhanced security of funds, knowledgeable exchange professionals and a commitment to keep the exchange process simple for our customers and their advisors. Every member of the exchange team is a Certified Exchange Specialist� and has the experience and expertise to facilitate even the most complex exchange transaction, including reverse, improvement and personal property exchanges. Additional information can be found at www.1031CORP.com. |
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Margo McDonnell, CES�
Certified Exchange Specialist�
President
1.800.828.1031 ext. 212
Mobile: 610.680.6896
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Sue Umstead, CES�
Certified Exchange Specialist�
Senior Vice President
1.800.828.1031 ext. 208
Mobile: 610.755.8520
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Marissa LoCascio, CES�
Certified Exchange Specialist�
Senior Exchange Officer
1.800.828.1031 ext. 210
Mobile: 610.742.4351
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Richard Heller, Esq., CCIM, CES�
Consultant
1.800.734.1031
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Bettye J. Matthews, CPA
Consultant
1.800.680.1031
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Joseph F. Szajnecki, CES�
Consultant
1.800.734.1031 |
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