LIKE-KIND
EXCHANGES
I.R.C. Section 1031
Presenter
Jeffrey P. Zane, Esquire
RAPB Podcast
Jeffrey P. Zane, Esq., President,
JEFFREY P. ZANE, P.A.
Practice Areas
 Real Estate Law – residential and commercial closings and refinancing;
landlord/tenant agreements & litigation and short sales.
 Estate Planning & Probate – revocable living trusts, durable power of
attorney, living will, healthcare surrogate, irrevocable life insurance trust,
qualified personal residence trust, probate and probate disputes.
 Corporate & Business Law – selection of and formation of all types of
business entities, management agreements, ownership agreements, succession
planning, purchase & sales of business entities.
 Tax Law – authorized to represent taxpayers in front of the U.S. Tax Court &
the I.R.S. regarding disputes
Professional Memberships
 President of Attorneys’ Real Estate Council of Palm Beach County, Inc.,
representing the membership of over fifty attorneys whose practice area
includes real estate law.
 Member of the Organizing Committee of the Statewide Real Estate
Council – part of the group organizing an umbrella organization for all of the
county real estate councils statewide.
 Serves on various committees of the Florida Bar Association and the Palm
Beach County Bar Association and has spoken to many groups on real estate
and estate planning issues.
Background Information
 AV Rated attorney by Martindale-Hubbell which means that that attorney
rating organization has given Mr. Zane the highest possible rating in both
legal ability and ethical standards.
 North Palm Beach County Chamber of Commerce – Member
 Temple Beth David, Palm Beach Gardens – President
Selling real estate normally creates an
immediate taxable event just as the
receipt of salary, interest, dividend,
partnership, or capital gain income.
• I.R.C.
Section 1031 provides an exception to this and
allows for the taxpayer to POSTPONE the recognition of
the tax liability.
• The easiest way to make use of this tax plan is to make a
simultaneous exchange of like-kind property of equal
value.
• Non-simultaneous
or deferred exchanges are more
complex; but they are possible. You can either do the
traditional deferred exchange where you obtain the
replacement property later or the non-traditional
deferred exchange where you obtain the replacement
prior to sell your previously owned property.
• If there is cash received or other non like-kind property
there may be a CURRENT recognition of tax liability.
GENERAL TERMS &/OR
STRUCTURAL
REQUIREMENTS
•
•
•
The disposition of the relinquished property that the Seller
wants to sell and the acquisition of the replacement
property that the Seller wants to obtain must be a combined
mutually dependent part of an integrated transaction.
Non-simultaneous exchanges have to comply with two time
limits or the entire gain will become taxable These limits
cannot be extended except for a presidentially declared
disaster. The first limit is that you have 45 days from the
date you sell the relinquished property. The property must
be identified in writing and delivered to the seller of the
replacement property or the qualified intermediary.
Notifying someone else is not enough.
The second time limit is that replacement property must be
received and exchange completed no later than 180 days
after the initial sale or the due date, with extensions, of the
income tax return for the tax year in which the relinquished
property was sold, which ever is earlier.
General Terms &/or Structural Requirements Continued
• In order to avoid the possibility of a premature receipt of
cash or other proceeds I suggest the use of a Qualified
Intermediary to hold the proceeds and the property until
the exchange is complete unless it is simultaneous.
• Attorneys Title Insurance has an office in the tri-county
area that offers this service to its closing agents of which
I am one. Neither you or your accountant, lawyer, broker,
banker, employee, etc. cannot act as your qualified
intermediary .
• Dealers,
people who hold real estate as inventory for
resale, cannot use Section 1031 for those properties. If
they are transferring property that they own as an
investor they can use Section 1031.
• Cash to equalize a transaction is recognized immediately
because it is not of like kind. This cash is called “Boot”
and it is taxed at capital gains rate. Boot basically means
“something given in addition to “ and it can include cash
equivalents, debts, liabilities or mortgages of the
taxpayer assumed by the other party or to which the
property exchanged is subject to.
• Taxable gain is deferred and not forgiven
• The basis of the property acquired is the basis of the
property relinquished with the required adjustments.
Steps of a 1031 Exchange
1.
Obtain the services of an experienced real estate
attorney and realtor.
2. Sell the property and include the Cooperation Clause in
the purchase and sales agreement.
3.
Enter into a 1031 exchange agreement with a Qualified
Intermediary (through Attorneys Title Insurance).
4. The relinquished property closes and reflects that the
Qualified Intermediary (“QI”) was the seller and the
proceeds are held by the QI. This closing is day “0” and
we have 45 days to identify the replacement property in
writing to the QI and the identified property must be
acquired within 180 days.
5. The written identification must be signed by everyone
who signed the exchange agreement.
6. Taxpayer
enters into an agreement to purchase
replacement property where QI is listed as the buyer;
but the deed reflects the true seller to the taxpayer.
7. The transaction must be complete within the 180 days.
8. Taxpayer files I.R.S. form 8824 when taxpayer’s tax
return is filed as required.