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1031 Exchange FAQ’s
What qualifies as a “like-kind” property?
All real property is considered “like-kind” and can be exchanged for all other real property.
What are ineligible properties for a 1031 Exchange?
*Stock in trade or property held primarily for sale
*Stocks, bonds, or notes
*Securities or evidence of indebtedness
*Timber rights
*Personal Residence
*Time-share
*Vacation home
When is gain or loss recognized?
The gain is recognized in a completed 1031 Exchange, when the owner disposes of the Replacement Property in fully taxable transaction. If the owner continues to execute 1031 Exchanges, the gain will never be recognized.
What is the role of the Qualified Intermediary?
The role of the Qualified Intermediary, or ‘Exchange Accommodator’, holds the funds of the relinquished property and monitors critical dates to meet the 1031 Exchange requirements.
What are the time limitations under the IRC Code?
There are two critical timelines that an owner must meet in order to meet the 1031 Exchange requirements. An owner has 45 days from the date of the sale of the relinquished property to identify the replacement property. 180 days from the transfer of the relinquished property, the title to the replacement property must be acquired.
1031 TIC FAQ’s
What is Tenants-in-Common (Tenants In Common)?
A Tenants In Common is a form of real estate asset ownership in which two or more persons have an undivided, fractional interest in the asset, where ownership shares are not required to be equal, and where ownership interests can be inherited. Each co-owner receives an individual deed at closing for his or her undivided percentage interest in the entire property. Through Tenants In Common ownership, the average person is able to enjoy ownership in an institutional-type property with a minimum investment.
What purchase amounts are required for Tenants In Common?
Revenue Procedure 2002-22 issued by the IRS allows up to 35 Tenants In Common owners in any one property. Minimum purchase requirements are structured to meet this limitation and can range as low as $150,000 equity.
What if a co-owner wishes to sell their Tenants In Common interest?
A 75% vote by the Tenants In Common owners will typically be sufficient to initiate the impasse resolution procedure. This procedure allows the Tenants In Common owners with 75% or more of the property to make an offer to buyout the co-owner with 25% or less of the property. The dissenting Tenants In Common owners can either: (1) accept this offer, (2) buy out the 75% Tenants In Common owners at the same price per percentage ownership, or (3) change their dissenting vote to a consenting vote.
What happens to a Tenants In Common ownership if a co-owner dies?
The ownership interest will pass to the heirs pursuant to the will just like any other asset. Currently, the estate tax code provides that they will also receive a stepped-up tax basis to fair-market value. The income taxes which were deferred because of the 1031 exchange are potentially forgiven forever.
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