We just completed another great California Escrow Association Annual Conference and Trade Show. It has been a challenging market, but there were still a lot of escrow professionals in attendance at the 2007 conference in Palm Springs, California.
There were some really great educational programs during the conference and the trade show had some great vendors marketing their services and wares, including Exeter 1031 Exchange Services, LLC.
We hope to see you next year.
Saturday, October 13, 2007
Friday, October 12, 2007
Sellers of Second Homes May Face a Tax Hike: Congress Looking at Section 121
Currently, you can sell your primary residence and exclude gains from your taxable income up to $250,000 per person ($500,000 for a married couple) if you have owned and lived in your house as your primary residence for a total of 24 months out of the last 60 months (2 out of the last 5 years).
It appears that Congress will soon pass a law making some of those gains taxable. This will apply to sales after 2007. I will keep you updated.
It appears that Congress will soon pass a law making some of those gains taxable. This will apply to sales after 2007. I will keep you updated.
Thursday, October 11, 2007
Proactive Planning to Prevent Failed 1031 Exchanges
I realized that my last two posts were a little depressing in that they were addressing failed 1031 exchanges, so I thought I would flip the topic over to proactive planning to prevent failed 1031 exchanges.
There are a number of strategic planning points that could help you avoid the experience of a bad 1031 exchange transaction, and they all have one thing in common - planning ahead or proactive planning. Procrastination is your worst enemy because your 45 and 180 day 1031 exchange deadlines fly by way too fast.
So, the bottom line is you need to be proactive and plan your 1031 exchange transaction well in advance. Those who plan will have little frustration during the actual 1031 exchange transaction.
You should start looking for property as soon as you know that you are going to sell property and structure a 1031 exchange. Do not wait until your property sells or is in escrow or is a sure thing. The best plan is to plan to close the sale of your 1031 exchange relinquished property and the close the purchase of your like-kind replacement property simultaneously. It is difficult to do so, but you can at least shoot for it.
Instruct your real estate agent to negotiate contingent language into your purchase and sale agreement that the buyer of your 1031 exchange relinquished property will wait until you have located suitable like-kind replacement property. Or better yet, find your like-kind replacement property first and negotiate contingent language that the seller of your like-kind replacement property will wait to close until you have sold and can close on your 1031 exchange relinquished property. The ability to negotiate this language will depend on the market cycle that you are in. Today, sellers are desperate for buyers, so you have a good chance to get what you want.
You might be able to lock up the like-kind replacement property by using a lease with a purchase option as well. This way, you've got control over the property and can exercise the option when you have sold your 1031 exchange relinquished property and are ready to sell.
The offer to release the earnest money deposit early on a refundable or non-refundable basis can also be a great strategic ploy to get the seller to cooperate with you as well. It lets them know that you are serious because you are willing to put your money where your mouth is.
Reverse 1031 Exchanges are becoming more and more popular as well. The reverse exchange allows you to acquire your like-kind replacement property first and then you have 45 days to identify what you are going to sell, which you probably already know, and 180 days to actually sell and close on your sale. You do not have to worry about any 1031 exchange deadlines up front because you have not sold your 1031 exchange relinquished property yet. You might want to read "Why Would You Use A Reverse 1031 Exchange?" for more complete information on reverse exchange transaction.
You may also want to consider investing in tenant-in-common investment properties as your like-kind replacement property, especially if it looks like your 1031 exchange transaction may actually fail. The TIC property might be a life saver. You should read "Brief Overview of Tenant-In-Common Investment Property Interests or TICs" for more complete information on TIC investment properties as a solution for your 1031 exhange.
The most important thing is that you must be proactive and plan your 1031 exchange transaction. Careful planning will go a long way.
There are a number of strategic planning points that could help you avoid the experience of a bad 1031 exchange transaction, and they all have one thing in common - planning ahead or proactive planning. Procrastination is your worst enemy because your 45 and 180 day 1031 exchange deadlines fly by way too fast.
So, the bottom line is you need to be proactive and plan your 1031 exchange transaction well in advance. Those who plan will have little frustration during the actual 1031 exchange transaction.
You should start looking for property as soon as you know that you are going to sell property and structure a 1031 exchange. Do not wait until your property sells or is in escrow or is a sure thing. The best plan is to plan to close the sale of your 1031 exchange relinquished property and the close the purchase of your like-kind replacement property simultaneously. It is difficult to do so, but you can at least shoot for it.
Instruct your real estate agent to negotiate contingent language into your purchase and sale agreement that the buyer of your 1031 exchange relinquished property will wait until you have located suitable like-kind replacement property. Or better yet, find your like-kind replacement property first and negotiate contingent language that the seller of your like-kind replacement property will wait to close until you have sold and can close on your 1031 exchange relinquished property. The ability to negotiate this language will depend on the market cycle that you are in. Today, sellers are desperate for buyers, so you have a good chance to get what you want.
You might be able to lock up the like-kind replacement property by using a lease with a purchase option as well. This way, you've got control over the property and can exercise the option when you have sold your 1031 exchange relinquished property and are ready to sell.
The offer to release the earnest money deposit early on a refundable or non-refundable basis can also be a great strategic ploy to get the seller to cooperate with you as well. It lets them know that you are serious because you are willing to put your money where your mouth is.
Reverse 1031 Exchanges are becoming more and more popular as well. The reverse exchange allows you to acquire your like-kind replacement property first and then you have 45 days to identify what you are going to sell, which you probably already know, and 180 days to actually sell and close on your sale. You do not have to worry about any 1031 exchange deadlines up front because you have not sold your 1031 exchange relinquished property yet. You might want to read "Why Would You Use A Reverse 1031 Exchange?" for more complete information on reverse exchange transaction.
You may also want to consider investing in tenant-in-common investment properties as your like-kind replacement property, especially if it looks like your 1031 exchange transaction may actually fail. The TIC property might be a life saver. You should read "Brief Overview of Tenant-In-Common Investment Property Interests or TICs" for more complete information on TIC investment properties as a solution for your 1031 exhange.
The most important thing is that you must be proactive and plan your 1031 exchange transaction. Careful planning will go a long way.
Tuesday, October 09, 2007
When is a Failed 1031 Exchange Taxable?
Yesterday I was discussing when a taxpayer would have the right to his or her 1031 exchange funds once his or her 1031 exchange fails. It is a very complex and frustrating situation to find yourself.
However, there might be a small bright spot even when your 1031 exchange has failed and becomes a taxable event.
The issues discussed yesterday outlined the circumstances under which the taxpayer would have access to his or her 1031 exchange funds when a 1031 exchange transaction falls apart.
The point in time that the taxpayer has the right to receive their funds from the 1031 exchange qualified intermediary when the 1031 exchange will determine the year in which the failed 1031 exchange will be taxable.
Click here for more complete information.
However, there might be a small bright spot even when your 1031 exchange has failed and becomes a taxable event.
The issues discussed yesterday outlined the circumstances under which the taxpayer would have access to his or her 1031 exchange funds when a 1031 exchange transaction falls apart.
The point in time that the taxpayer has the right to receive their funds from the 1031 exchange qualified intermediary when the 1031 exchange will determine the year in which the failed 1031 exchange will be taxable.
Click here for more complete information.
Monday, October 08, 2007
When Can You Get Your Money Back in a Failed 1031 Exchange
This is always a difficult issue to address. It creates an immediate conflict between the taxpayer who wants immediate access to his or her 1031 exchange funds and the 1031 Exchange Qualified Intermediary who is trying to comply with IRS Regulations.
The taxpayer who was attempting to complete a 1031 exchange was either not able to identify and/or acquire any like-kind replacement properties in order to successfully complete his or her 1031 exchange transaction.
Therefore, the 1031 exchange fails and the 1031 exchange has not turned into a taxable transaction. The taxpayer demands the return of his or her 1031 exchange funds immediately since the 1031 exchange has now failed and it is now taxable, but the 1031 Exchange Qualified Intermediary refuses to do so. Who is right? What can be done?
The IRS Regulations make it very clear that the taxpayer's 1031 Exchange Qualified Intermediary (Accommodator) can only permit the taxpayer to have access, exercise control over or receive the benefit of his or her 1031 exchange funds under certain circumstances.
The taxpayer does not care because in their view their 1031 exchange has failed and it is taxable regardless of when they receive the funds. The 1031 Exchange Qualified Intermediary does care because they do not want to risk losing their status as a 1031 Exchange Qualified Intermediary and jeopardizing the status of other clients' 1031 exchanges that were successful.
Click here for more information regarding this issue.
The taxpayer who was attempting to complete a 1031 exchange was either not able to identify and/or acquire any like-kind replacement properties in order to successfully complete his or her 1031 exchange transaction.
Therefore, the 1031 exchange fails and the 1031 exchange has not turned into a taxable transaction. The taxpayer demands the return of his or her 1031 exchange funds immediately since the 1031 exchange has now failed and it is now taxable, but the 1031 Exchange Qualified Intermediary refuses to do so. Who is right? What can be done?
The IRS Regulations make it very clear that the taxpayer's 1031 Exchange Qualified Intermediary (Accommodator) can only permit the taxpayer to have access, exercise control over or receive the benefit of his or her 1031 exchange funds under certain circumstances.
The taxpayer does not care because in their view their 1031 exchange has failed and it is taxable regardless of when they receive the funds. The 1031 Exchange Qualified Intermediary does care because they do not want to risk losing their status as a 1031 Exchange Qualified Intermediary and jeopardizing the status of other clients' 1031 exchanges that were successful.
Click here for more information regarding this issue.
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