Merry Christmas

Merry Christmas and Happy New Year to each and everyone of you, and best wishes for a safe, healthy and prosperous 2007. I look forward to chatting with many of you in 2007.

Selecting a SAFE Qualified Intermediary (Accommodator)

You may already know that 1031 tax-deferred exchange transactions are structuring using the services of a Qualified Intermediary or more commonly referred to to as an Accommodator, but did you know that they are not licensed, regulated or required to be bonded?

It's true! Anyone can set-up a Qualified Intermediary business and start administering tax-deferred exchange transactions. So, it is extremely important that you know what to look for, what questions to ask, and what to be wary of.

The Qualified Intermediary is a crucial part of any successful tax-deferred exchange, and you should therefore be very careful when evaluating Qualified Intermediaries. You can learn more by clicking here.

Tax-Deferred Exchanges of Personal Property

Did you know that personal property can be exchanged using Section 1031 of the Internal Revenue Code in addition to real estate. It is a little known fact, and many companies sell and buy personal property and pay the capital gain taxes when they could be exchanging and deferring their income taxes instead.

As corporations and individuals alike learn more about the income tax benefits of this powerful income tax-deferral strategy, we are beginning to see an increase in personal property tax-deferred exchanges.

The vast majority of tax-deferred like-kind exchanges involve real estate. Personal property 1031 exchanges only account for an estimated 5% of the total transactional volume. However, research indicates that the growth in personal property 1031 tax-deferred exchanges will be significant over the next decade.

The income tax consequences are phenomenal. Click here to learn more about tax-deferred exchanges and personal property assets.

Exeter Featured Expert in Roundtable Discussion on TIC Properties

I was a featured expert in a roundtable discussion on tenant-in-common investment properties (TICs) hosted by the California Real Estate Journal entitled "Fractionalized, but not fractured."

The TIC investment property roundtable consisted of experts from all aspects of the TIC Industry, including TIC Sponsors, a TIC Registered Securities Representative, a Qualified Intermediary (Accommodator), an attorney, and lender.

This expert panel discussed issues surrounding the explosive growth of the tenant-in-common investment property industry and how it has broken into the mainstream along with the challenges that come with such impressive growth.

Click here to view news release regarding this TIC Roundtable discussion.

Detailed Analysis of Reverse 1031 Exchanges

Well, after the last post on reverse 1031 exchanges, I received many, many emails asking for more complete information regarding reverse 1031 exchanges. So, I have written a follow-up post with more complete technical information. You can click here to access the indepth analysis on reverse 1031 exchanges.

Let me know if you have any further questions. I would be happy to discuss your situation in detail.

Overview of Reverse 1031 Exchanges

The real estate market has changed considerably over the last six to ten months. There is significanly more real property inventory on the market today compared to the same time last year. In fact, in some geographic areas there is about six to eight months worth of inventory listed on the MLS.

You may also be experiencing what other investors have recently. You may have listed your relinquished propperty for sale while putting your like-kind replacement property under contract at the same time fully expecting both your sale and acquisition to close simultaneously.

The unexpected then happens. The sale either does not sell or falls out of escrow and you are faced with a difficult decision. You must either complete your acquisition or lose it. What do you do?

There is a solution that will still allow you to qualify for tax-deferred exchange treatment. It's called a reverse 1031 exchange.

The reverse tax-deferred exchange allows you to acquire your lke-kind replacement property first and then sell your relinquished property later. Although it is significantly more expensive and complicated, it can be the difference between a taxable or tax-deferred transaction.

It also eliminates the risk of the extremely short 45 calendar day identification rule, so I always prefer the reverse 1031 exchange over the regular forward tax-deferred exchange.

You may wish to learn more about reverse 1031 exchanges by clicking here.

Liability and Property and Casualty Insurance Coverage Requirements for Reverse and Build-To-Suit 1031 Exchanges

Your Reverse and/or build-to-suit tax-deferred exchange transactions will involve a special purpose entity ("SPE") in the form of a single member limited liability company ("SMLLC") or other type SPE to be formed exclusively for the transaction.

The sole purpose of this SPE will be to function and serve as your Exchange Accommodation Titleholder ("EAT") that will acquire and hold or "park" title to either your relinquished or like-kind replacement property until your relinquished property can be sold.

Insurable Interest

This newly formed SPE serving as the Exchange Accommodation Titleholder will hold title to the designated property ("parked property") for up to 180 calendar days. The simple fact that the SPE is holding title to property as the EAT exposes the EAT to potential risk and liability as the legal property owner.

In order to protect the SPE serving as the EAT very specific liability and property and casualty insurance coverage is required to be paid in full and in place before any transaction can close. In addition, the evidence of insurance coverage such as an insurance binder must be reviewed and approved by the EAT prior to the actual closing.

The SPE serving as the EAT therefore has an insurable interest in the property and must be protected before any closing can occur. Evidence that the SPE serving as the EAT has been listed as the primary insured on the required insurance coverages must be approved by the EAT and in place prior to any closing.

Click here to learn more about the insurance requirements for reverse and build-to-suit tax-deferred exchange transactions.