Extensions for 1031 Exchanges Have Been Issued by the IRS

IRS Issues Extensions for 1031 Exchange Deadlines

Taxpayers involved in a 1031 exchange finally have the answer they have been waiting for regarding extensions for 1031 deadlines.

On April 9, 2020, the IRS Issued Notice 2020-23, an update to Notice 2020-18, “Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic.”

Taxpayers currently engaged in a 1031 exchange with a 45-Day Exchange Period or 180-Day Exchange Period deadline between April 1 and July 15, 2020, will have an automatic extension to July 15th. Unfortunately, this notice does not provide extensions for anyone whose 45-Day or 180-Day deadline was in February or March.

The Federation of Exchange Accommodators (FEA) and the National Association of Realtors (NAR) will continue working tirelessly to seek additional relief for those taxpayers not covered by these extensions.

We will keep you informed of any developments as they are released. Please contact Midland 1031 if we can help you or your clients in any way.

We are here to help. Stay Safe.

Can I Do a 1031 Exchange With Various Types of Commercial Properties?

Can I Do a 1031 Exchange With Various Types of Commercial Properties

Absolutely. As long as the property you sell and the property you purchase are considered ‘investment or business-use property,’ a 1031 exchange could defer and maybe even eliminate federal taxes, state taxes, and capital gain taxes.

What types of commercial properties are eligible for a 1031 exchange?

Some examples of commercial properties eligible for a 1031 exchange include (but are not limited to):

  • Industrial properties
  • Warehouse properties
  • Multi-family properties including high-rise or apartment complexes
  • NNN properties
  • Delaware Statutory Trusts (DSTs)
  • Office properties
  • Retail properties
  • Land used for speculation/Development
  • Hotels/Motels
  • Storage Facilities
  • Medical office/Retail
  • Special purpose (churches, government buildings, etc.)

May I use my commercial properties even if I do a 1031 exchange?

You may use the property you purchase in an exchange for your business. For example, if you exchange a retail strip center for an office building, you may use the office property for your business. Many 1031 exchanges are used to expand company headquarters or to increase the amount of warehouse space needed to run a business.

How do I know if it would be beneficial for me to do a 1031 exchange of my commercial properties? What is in it for me?

Benefits of doing a 1031 exchange include:

  • More purchasing power – more money to invest since you are deferring the taxes
  • More selling power – no need to increase the price to sell the property in order to cover the taxes
  • Acquire a property that produces more income – exchange raw land for a retail center
  • Consolidate smaller properties into one larger or greater income-producing property – exchange of individual office condo(s) for a high-rise multi-family property
  • Relocate investment properties closer to home – exchange commercial properties in New York for properties in Florida
  • Enables investor to acquire a less management intensive property – exchange a rental home for raw land
  • Allows the investor to expand a business into a larger space – exchange a single-story office property into a multi-floor office building

Does the new tax law allow me to still do a 1031 exchange with my commercial properties?

Yes. The Tax Cut and Jobs Act that was signed into law on December 22, 2017, and took effect on January 1, 2018, still allows the exchange of real estate assets and has been renamed to “Exchange of real property held for productive use or investment.”

Are there different types of 1031 exchanges?

There are a few different types of 1031 exchanges. Midland is able to accommodate all types of exchanges.

Conclusion

There are many advantages to completing a 1031 exchange for commercial properties ranging from deferring capital gains taxes to expanding your business. All types of commercial property are still eligible for a 1031 exchange even under the Tax Cut and Jobs Act that came into effect on January 1, 2018.

We ask that you please check with your tax advisor or CPA to calculate your potential capital gains taxes.

CHECK OUT OUR NEW MIDLAND 1031 WEBSITE HERE

Timing Rules of a 1031 Exchange: How 1031 Exchanges Work

Timing Rules of a 1031 Exchange How 1031 Exchanges Work

A 1031 exchange is a fantastic real estate investing maneuver. Exchanges allow the deferment of capital gains tax, depreciation recapture tax, healthcare tax, and state tax on the sale of investment and business-use property. But, exactly how does a 1031 exchange work? These transactions are for business use or investment property only. And, there are critical timing rules of a 1031 exchange you must meet when identifying and closing on replacement property after your original property sells.

Timing rules for selling and buying (exchanging) property using 1031s

The 45-day rule starts when you close on your relinquished property:

  • You have 45 days from the closing on your relinquished property to identify up to three replacement properties and to send that information to your qualified intermediary.
  • If you only identify three properties, their purchase price can be any value. Note: You can identify more than three properties. Their combined value cannot exceed 200 percent of the relinquished property’s sale price. This rule only applies when you identify more than three properties for exchange.
  • If you are unable to identify replacement properties within 45 days, the exchange is over with no tax deferral.

Timing rules of a 1031 exchange infographic image

The 180-day rule also begins on the day your relinquished property sells:

  • You have 180 consecutive days from the day your relinquished property sells to close on one or more of the properties you identified for exchange.
  • On the 180th day, your exchange must be complete.
  • Failing to close on the property within this time frame voids your exchange.

Timing rules of a 1031 exchange are crucial, but there are other aspects that determine how 1031 exchanges work successfully:

When performing a 1031 exchange you must use a qualified intermediary (QI) such as Midland 1031. The use of a Certified Exchange Specialist® (CES®) is highly recommended. These professionals ensure your transactions comply with the IRS and fall within the timing rules of 1031 exchanges.

Midland is an experienced QI. We have two CES® team members that ensure your exchange is completed seamlessly and satisfactorily. This process allows you to concentrate on and to continue building investment income on real estate assets.

To learn more or to start your exchange, contact Midland 1031 at 239-333-1031 or visit our website to discover more about how 1031 exchanges work today.

Find detailed information on exchange qualifications in this IRS publication.

For information regarding real estate investments within an IRA or other retirement account, contact Midland Trust at 239-333-1032 or visit www.midlandtrust.com.

Editor’s note: This blog was originally published in May 2016 and has been updated for accuracy and comprehensiveness.

1031 Exchange Process: Build Real Estate Investing Capital

1031 Tax-Deferred Exchanges Can Help Build Real Estate Investing Capital

The 1031 Exchange Process

Exchanges allow the deferment of capital gains taxes on the sale of property. This strategy can help build real estate investing capital. The taxes saved provide the accumulation of funds to acquire new property. As a result, the 1031 exchange process is a real estate investor’s dream.

There is no limit to the number of exchanges investors can perform. Additionally, almost all property is permissible in 1031 exchanges. As long as the real estate’s purpose is for business or investment use only.

Watch this short video to learn more about how exchanges can help you defer huge taxes on your property assets.

1031 Tax-Deferred Exchanges Video Transcript

Wouldn’t it be nice to not pay taxes on the sale of your investment property? A 1031 exchange allows you to sell an investment or business-use property for another of equal or greater value. This strategy defers capital gains, depreciation recapture, state, and healthcare taxes. As long as you trade up in value, you’ll defer all taxes associated with the sale of your investment property.

All investment real estate qualifies. Single and multi-family homes, commercial real estate, land, and more qualify!

An exchange allows the investor to increase cash flow, acquire property with greater income potential, diversify or consolidate property, and move markets.

Stop paying taxes! Begin your 1031 exchange today by calling Midland IRA & 1031 at (239) 333-1031. Midland 1031 is a qualified intermediary. We have facilitated thousands of 1031 exchanges for clients throughout the United States. Learn more by visiting the Midland 1031 website.

Commit to learning how you can defer taxes and contact us today to learn more.

Why 1031 Exchange If I Am Going To Have To Pay Taxes Eventually?

Why 1031 Exchange If I Am Going to Have to Pay Taxes Eventually

We are often asked: why perform a 1031 exchange if I’m going to have to pay taxes at some point?

This is not totally true. There are two ways that you can do a 1031 exchange and may NEVER have to pay taxes.

Convert to Primary Home

With careful planning, you could convert your 1031 exchange to your primary home. After two years of renting out a 1031 exchange property, you can convert it to your primary home.

Continue to 1031 Exchange for Life

Converting your investment property to your primary home may not interest you. In this case, there is another way to avoid ever paying taxes on 1031 exchange properties. You can use the strategy of doing exchange after exchange to defer taxes until your death. Then, when you die, all capital gains gained over the years of doing exchanges go away. This allows your heirs to inherit the property on a stepped-up basis. This means they inherit the property at the current fair market value.

Midland 1031 is not a fiduciary or financial advisor. As with any investment, you should consult with your CPA or tax advisor for more information.

Midland 1031 serves as a Qualified Intermediary (QI). We have two Certified Exchange Specialists® (CES®) on staff. We have performed exchanges for clients across the nation. Midland 1031 ensures your exchange is performed correctly.

With a 1031, you can exchange investment or business-use real estate to defer taxes. These taxes include capital gains, depreciation recapture, healthcare, and state taxes. These deals must be done well and with great attention to detail. This protects your investment and maintains compliance with industry rules and regulations. Midland 1031 works with you to make sure this happens.

To start your 1031 exchange or for questions, please contact Midland 1031 at 239-333-1031, or visit our website.

For real estate investments in an IRA, contact Midland Trust. You can reach them at 239-333-1032, or visit the Midland Trust website.

10 Things to Know About 1031 Exchanges

10 Things to Know About 1031 Exchanges

A 1031 exchange allows you to sell an investment or business-use property for another business or investment use property of equal or greater value deferring capital gains tax, depreciation recapture tax, state taxes, and healthcare tax. Below are 10 things to know about 1031 exchanges.

  1. To defer all capital gains, depreciation recapture tax, healthcare tax, and state taxes you must purchase a replacement property for equal or greater value of the relinquished property’s net selling price. The net selling price is the contract price minus closing costs. If an investor cannot or decides not to find a replacement property of equal or greater value of the relinquished property then they are subject to pay taxes on the difference.
  2. The property must be held for investment or business use only. This may be the most important of all things to know about 1031 exchanges.
  3. All investment real estate qualifies for a 1031 exchange. This includes land, commercial real estate, single-family homes, multi-family homes, and condominiums.
  4. Property that does NOT qualify for a 1031 exchange includes primary residences, secondary homes, and property not intended for business or investment use.
  5. Investors have a total of 180 consecutive days to complete a 1031 exchange. The 180-day clock begins the day you sell your relinquished property.
  6. Within the first 45 days of the 180 days investors must identify up to three replacement properties of any value. Only these properties qualify for the 1031 exchange. Investors can identify more than three replacement properties but the sum of their total value cannot be more than 200 percent of the relinquished properties net selling price. By day 180, the investor must close on all intended replacement properties that they identified during the first 45 days.
  7. Investors must use a qualified intermediary to complete the exchange. The qualified intermediary cannot be an agent or fiduciary of the investor such as their realtor, CPA, attorney, or financial advisor. It’s also beneficial to hire a qualified intermediary with their Certified Exchange Specialist® designation (CES)®. Midland 1031 has two Certified Exchange Specialists® on staff.
  8. You do not have to exchange the same type of property for one another. You can exchange commercial property for residential, or residential property for a piece of land. You can even exchange one property for multiple properties or you can consolidate multiple properties into one.
  9. With careful planning you may never have to pay taxes. Simply follow the 1031 exchange rules every time you sell one or more properties and buy replacement properties. When you die, your estate forever escapes all capital gains taxes. Consult with your CPA or tax advisor to properly plan.
  10. To begin a 1031 exchange you must contact a qualified intermediary BEFORE you close on the relinquished property.

Although we have armed you with the above 10 things to know about 1031 exchanges, these can be complex actions that require care and detail to perform. For more information on 1031 exchanges contact Midland 1031 at 239-333-1031 or visit www.Midland1031.com.

1031 Exchanges for Farmers: Livestock and Equipment

1031 Exchanges for Farmers - Livestock and Equipment

Many farmers do not realize the enormous benefit that a 1031 Exchange can afford them. 1031 is the tax code section that allows owners of investment or business assets to exchange (and buy up in value) which will result in a deferral of all taxes. Farmers and Ranchers can exchange land as long as the replacement property is held for investment.

Many farmers do not take advantage of a section of the code in 1031 that allows them to defer the tax on sale of livestock and business assets like tractors. Livestock can be exchanged as long as it is held for investment. The most common types of livestock include breeding stock and milking cows. There are some specific rules regarding livestock. Livestock exchanges must be of the same sex and typically the farmer cannot exchange between breeds (i.e. milking cows are not equal to beef cows).

Farmers can also exchange equipment. Usually this means tractors, machinery or irrigation equipment. For assets to be exchanges for other personal property in a 1031, they must be of the same general asset class or product class. The IRS has identified the asset classes they believe are like kind with detailed description of classes (NAICS).

A recent exchange included a farmer with a stud bull valued at $20,000. The stud was exchanged for two younger bulls valued at $22,000 (for both). The farmer paid $5,000 for the original bull and had 2 useful season breeding with him. The bull was owned in a C Corp and would have had to pay tax of $5,250.00 but with the 1031 no tax was due that year.

Farmers have three useful assets to exchange in a 1031 that can save them thousands of dollars in taxes. If you would like more information on a 1031 exchange, please call Midland Trust at (239) 333-1031.

Please note there are several rules that need to be followed in a 1031 exchange. Please request our 1031 Exchange Guide for more information and consult your tax advisor.