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One man's opinion

By CURTIS REYNOLDS, for 1031-exchangeproperty.com 8/31/2007

There are specialist in the area of 1031 and triple net leases that can help guide you through your investment strategy should you need them. Suppose that you purchase a rental property and nurture it over the years. The ex ante benefits of the diversification of REITs are shown to be related to ex post performance by using a dynamic asset allocation exercise with ex ante information. In addition to providing analysis of the corporate decision to repurchase shares, the study of share repurchases in the context of REITs provides a novel opportunity to disentangle the impact of competing theories for the abnormal returns observed around repurchase announcements. However, there are certain requirements that must be met to do this. The 1031 exchange can offer significant tax advantages to real estate buyers. The most common form of boot in an exchange is cash.

Alternative opportunity: the 1031 property exchange

In effect, you are trading your home for a long-term income stream, without paying capital gains tax. In addition to providing analysis of the corporate decision to repurchase shares, the study of share repurchases in the context of REITs provides a novel opportunity to disentangle the impact of competing theories for the abnormal returns observed around repurchase announcements. Production payments do not qualify for a 1031 Exchange. This means that the taxpayer cannot use their current attorney, certified public accountant or real estate agent.A 1031 exchange is a real estate transaction realized under Section 1031 of the Internal Revenue Code in order to defer relevant taxes until a future date. Included within this group are deductions for excess Intangible Drilling and Development Costs and the deduction for depletion allowable for a taxable year over the adjusted basis in the Drilling Acreage and the wells thereon. Similarly, higher levels of outside blockholdings have a negative impact on both equity and hybrid and mortgage market-to-book ratios.TIC properties may be any of the major property types including office, retail, apartment or industrial. The revenue procedure acknowledges that many arrangements currently used by taxpayers are acceptable. This seemingly simple transaction is littered with pitfalls.

Suitability of 1031 property exchange to individual investors

The equity REIT index returns were found to Granger cause unsecuritized real estate returns for most of the real estate indices. But it is stated that the real property in the United States and real property outside the United States are not like-kind properties. "Roof and structure" is sometimes calculated as a reserve, the most common amount is equal to $ .15 per square foot.A 1031 exchange is a real estate transaction realized under Section 1031 of the Internal Revenue Code in order to defer relevant taxes until a future date.x

Market conditions affecting 1031 property exchange

The investment property is put on the market. Generally speaking, the best way to accomplish this goal is to have a "Special Purpose Entity" acquire title to the replacement property, have the Special Purpose Entity build the improvements, and have the exchangor acquire the replacement property and improvements from the Special Purpose Entity under the regulations for exchanges. Currently, the Percentage Depletion Allowance treats 100% of an investor's first 15% of oil and gas income as tax-free.Basically, a real estate project sponsor owns one or more commercial properties in which they will sell a Tenancy-In-Common fractional interest to a number of co-owners. IRA investing into real estate opens up numerous alternatives for individuals.The 95% Rule means any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identified. Section 1031 was written into the Internal Revenue Code in the 1920's. The IRS will not allow an extension of this time limit for any reason. In the case of a failed or partial tax-deferred like-kind exchange transaction, an Investor may still be able to recognize the gain in the following year rather than the year in which the relinquished property was transferred, depending on when the Investor had the right to obtain the tax-deferred like-kind exchange funds. Clearly, this is a sticky situation because the accommodation party will typically want full indemnification from the taxpayer for all liabilities associated with the replacement property during the time that the accommodation party "owns" it, and only the most benevolent taxpayer will allow the accommodation party to profit during the parking period, particularly at the taxpayer's ultimate expense.

Room for error: 1031 property exchange

Some similarities include a variety of legal formalities, with professionals such as real estate agents generally employed to assist the buyer; taxes need to be paid but typically less than those in US; legal paperwork will ensure title; and a neutral party such as a title company will handle documentation and monies in order to smoothly make the exchange between the parties.TIC properties may be any of the major property types including office, retail, apartment or industrial. Clearly, this is a sticky situation because the accommodation party will typically want full indemnification from the taxpayer for all liabilities associated with the replacement property during the time that the accommodation party "owns" it, and only the most benevolent taxpayer will allow the accommodation party to profit during the parking period, particularly at the taxpayer's ultimate expense.In 2000, the IRS issued Revenue Procedure 2000-37 (October 2, 2000) containing a safe harbor for reverse exchanges. In an exchange, the taxpayer must be able to take title to a specific interest in the property (that is, the taxpayer must be on the deed). Learn more about 1031 exchange fees, costs and charges.

The 1031 property exchange property search

One can imagine the problems of financing and trusting the acquaintance, not to mention the tax risks. If the replacement property is to be produced, the identification requirement is satisfied if a legal description is provided for the underlying land and as much detail is provided regarding construction of the improvements as is practical when the identification is made. Sometimes referred to as a "Starker Trust", a 1031 Exchange is a transaction in which an owner of property held for investment is allowed to sell one or more properties and purchases one or more properties without a tax consequence. By identifying a TIC property, you can reduce your potential tax risk, and avoid a failed closing. This also includes purchasing royalty and working interest oil and gas programs. While tax-deferred exchanges can provide incredible opportunities for real estate investors, there are specific rules that must be followed. But before you pull out your checkbook to pay the capital gains and state tax, consider a 1031 Exchange. A tax deferred exchange is a transaction involving the transfer of one investment or income property and receipt of a like-kind property which will be used as income or investment property. Revenue Procedure 2000-37 applies only to transactions in which an exchange accommodation titleholder (EAT) acquires qualified indicia of ownership of property on or after September 15, 2000.