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Specializing in Flawless Section 1031 Exchanges For Over 27 Years |
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QINews |
Volume 6.1 - April 2008 |
| On the Home Front! Our New Look & Feel! | |
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We have been working diligently this winter to spruce up our materials, company logo and our website. If you haven’t tried your web-feet for awhile, this is a perfect reason to log on, jump in, and check out our new look. As always, you’ll find us at www.section1031.com. |
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| There is Power in Section 1031 - Are you up to speed? | |
 Exchanges are our only business, and we've been doing them for a long time. Our business is primarily derived from past clients and from our large referral base comprised of those professionals who are in a position to recommend an Exchange as a part of their client's strategy. Over the years we have educated hundreds of professionals and individuals, and we welcome the opportunity to train you as well. We never charge for Section 1031 training. Call us or fill out this form below to arrange for your seminar or webinar. |
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| Rev. Proc. 2008-16- Vacation Home Guidance | |
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Rev. Proc. 2008-16 clarifies that the dwelling unit (Relinquished Property) must be owned by the taxpayer for 24 months immediately preceding the exchange and the new unit (Replacement Property) must be held for 24 months immediately following the exchange. Personal use is limited to 14 calendar days or 10 percent of the days actually rented, whichever is greater, in the two twelve month periods before the exchange and for the following two twelve month periods after the new property has been acquired. The property must be rented to others for more than 14 calendar days in each of the 2 years preceding and the 2 years following the exchange. We have advised clients for
years to keep detailed records of their personal use and not to exceed the
limits. In short, tighten up your record keeping and the tax reporting of your
property. Be serious in your rental attempts; charge your friends the going
rental rate when they use it. Keep detailed records of the dates you use it and
what you did – especially for each maintenance day. Planning is the best tool
in your hands, use it wisely. |
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| Selling Your Headache - An Exchange Can Bring Relief | |
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As
spring brings the prospects of new vitality and change, maybe it’s high time
to consider the
Exchanging it for more productive property or converting it to a passive real estate investment may be just the ticket. There are numerous options to consider and we would be happy to discuss your situation for the best possible result. |
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| Sharpen up your strategy | |
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| Swapping Properties | |
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This is particularly true with related parties. We recently advised two brothers how to unwind their joint ownership without destroying the tax deferral in the process. The guys developed a plan on paper to swap deeds with each other on pieces of property with similar values. They had convinced themselves that they didn’t need a Section 1031 Exchange to accomplish the task, after all, they agreed on the deal. The devil is always in the details as the saying goes! Without an Exchange Agreement memorializing the transaction, relatives or not, they were committing audit roulette. The audit of one of their tax returns will lead to the other party almost guaranteed. The added complexity for relatives requires a two year holding period and the filing of Form 8824 for three consecutive years! The fix is easy, call us and we’ll steer you clear of this mishap before it costs you. Your transaction can potentially be disallowed with all the related fines, fees and penalties, and of course, the capital gains tax you were trying to avoid. |
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| Case Study #17 - Equipment Exchange | |
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We represented a client with a nearly fully depreciated bulldozer. The machine was only seven years old so it held considerable market value. Our client sold the dozer and used the mechanism of an exchange. He acquired a backhoe, going up in value and he paid no depreciation recapture or capital gains tax. He can begin amortizing the new equipment to the extent of his new investment and by avoiding the tax, he had more cash to do the deal. |
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Edmund &
Wheeler, Inc. QI |
QINews © 2008 Edmund & Wheeler, Inc. All rights reserved. Reproduction without permission is strictly prohibited. Please contact Christine S. Latulip at 603-444-0020 for additional information. |
George's
grandson Mills celebrated his first birthday last month and we wanted to lead
off our Spring newsletter with his bright cheery face. Sitting in a 1031
(pumpkin) patch, our favorite time of the year! George has returned to us
from the sun of northern Florida, just in time to concentrate on tax matters.
Clients with open exchanges will be encouraged to file for an extension of their
tax returns so that they can take full advantage of the 180 day time period.
The Internal Revenue Service
has just issued
sale
of that property that has been a constant headache to you. Facing up to the
reality is the first step in changing the direction of your real estate
investments.
In our last issue, we laid out five different strategies for reinvestment of
Relinquished Properties. Some were legacy issues, others outlined passive real
estate investments. We had a tremendous response from that article
Clients occasionally will try to create an exit strategy for property that
they own jointly with another party only to find out that they are in jeopardy
of blowing their potential tax savings. 
Section 1031 is not just for real property, personal property qualifies as
well as long as it is in the same "General Asset Class" or the same
"Product Class", we refer to the
North American Industry Classification System in categories 31, 32 or 33 but
many items such as collectible art and collectible cars are exchangeable also.
The
notion of a bargain sale (a sale where the realized value is less than market
value) conjures up visions of tax loss not capital gains. In this case, our
client sold a tract of land to a local land trust and he agreed to accept less
cash for the opportunity to take a tax deduction for a charitable contribution.
The market value was $160,000, he took a charitable deduction for $70,000 and
exchanged the remaining $90,000 for new Replacement Property. This strategy will
also work for the sale of conservation easements when the value of the
development rights are sold and the underlying real property remains in the hands
of the owner.