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Please contact Mr. Frederick P. Petrella, President of Connecticut Realty Group, LLC at 203-484-0425 or fredp@ctrealtygroup.com should you wish a further understanding of IRC 1031 Exchanges. If you are
interested identifying replacement properties and/or selling your
current property under Section 1031 of the Internal Revenue Code
please call or register at our Investor
/ 1031Needs
form. What is a 1031 Exchange? Under
the Internal Revenue Code
Section 1031, it states that no gain or loss shall be recognized
on the exchange of property held for productive use in a trade or
business or for investment if such property is exchanged solely for
property of “Like-Kind” which is to
be held either for productive use in a trade or business or for
investment. You must reinvest all
cash proceeds from the sale, and purchase a new property or
properties of equal or greater value, in order to avoid taxation on
the gains. What is the definition of "Like Kind?" As
used in IRC 1031(a), the words “Like-Kind” have reference to the
nature or character of the property and not to its grade or quality.
One kind of class of property may not, under that section, be
exchanged for property of a different kind or class. The fact that
any real estate in involved is improved or unimproved is not
material, for that fact relates only to the grade or quality of the
property and not to its kind of class. In other words,
IRC
Section 1031 provides for an extremely broad definition of what
“Like-Kind” property, however, primary residences are not of
“Like-Kind” to IRS 1031 property. How does a 1031 Exchange benefit me? Tax
Savings and Preserving Wealth! Under
normal circumstances, when you sell a property you have to pay tax
on the gain. Gain is caused by taking depreciation deductions for
tax purposes or by the property appreciating in value during its
ownership. If your plans include using the money from the sale of a
business or investment property to buy more of the same, a 1031
Exchange provides greater proceeds for your next investment-more
than you could gain through the re-investment of after-tax proceeds.
Do
I have to be a real estate investor to take advantage of a 1031
Exchange? No.
Any building owner, who is selling a property (not primary
residence) and would like to re-invest the proceeds into another
property, is eligible for a 1031 exchange. Although this practice is
much more prevalent on the west coast, it is not uncommon for
companies who own their buildings and need to relocate into bigger
facilities, (i.e. industrial, office, retail) to utilize a 1031
Exchange. However, the titleholder on the
old property must be the same titleholder on the new property How long do I have to complete the IRC
1031 Exchange? You
have 45 days from the date of closing on the old property to
identify a list of properties, from which you will purchase the new
property. From
the date of closing, you have 180 days to close on one or more of
the properties from your 45-day list. How
Do I start my exchange? If
you are selling a property, and wish to consider a 1031 Exchange,
make sure that the real estate contracts have the 1031 terminology
in the contract that allows for the assignment & indicates your
intent to do an exchange. Your legal counsel can suggest proper
language, however, below is a sample clause. “Both
the Seller and the Buyer hereto agree to cooperate with each other
in a manner necessary to enable either party to qualify for a IRC
Section 1031 tax-deferred exchange at no additional cost or
liability to either party. Either party’s rights and obligations
will be assigned to Investment Exchange Group to facilitate such
exchange.” Can
I utilize the proceeds of the sale of my property while looking for
an exchange property? No,
absolutely not. This is one of the most critical components of a
successful IRC 1031 Exchange. The codes states that the seller can
not take actual or constructive receipt of any of the proceeds
received from the sale of the old property. The seller must utilize
a safe harbor where the proceeds must be held until the exchange
property is purchased. The most common method of guaranteeing this
safe harbor rule is the use of a Qualified Intermediary. What
is a Qualified Intermediary? A Qualified Intermediary is a person or entity… 1.) who is not the taxpayer or any other disqualified person or entity as defined in the code. 2.) who enters into a written agreement with the taxpayer (the “exchange agreement”) and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfers the relinquished property, acquire the replacement property, and transfers the replacement property to the taxpayer. You cannot have an associate or employee, your attorney, broker or CPA hold the proceeds, nor can you leave the proceeds in escrow until the second property is purchased. Connecticut Realty Group, LLC is not a Qualified Intermediary, and can suggest several professional organizations that specialize in this field. Where
do I find an acceptable replacement property? Each individual investor has needs and objectives specific to themselves, and we can assist you in evaluating the opportunities that are available in the marketplace. Please give Frederick P. Petrella, President of Connecticut Realty Group, LLC a call at 203-484-0425, or simply fill out our Investor Registration form and we will call you immediately to discuss the details. Disclaimer:
This overview is intended to provide a broad overview of the major
issues relating to IRC Section 1031. Each investor is encouraged and
should always seek the advice of their tax and/or legal advisors
regarding their specific situation. Home Connecticut
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