1031 Exchanges by the Numbers: Part I of a Series

1031 exchange transactions are actually relatively easy tax-deferred exchange structures to implement if you know what you are doing, but can be very complicated to put into practice if you only use them occassionally.

I thought it would be appropriate and useful to start a step-by-step series on how to begin, structure and complete a 1031 exchange transaction, so stay tuned for the series that will lead you through the complicated process of structing a 1031 exchange.

The Exeter Group Real Estate Talk Radio Show for Monday, December 3, 2007 (Updated)

Monday, December 3, 2007

This week Byron Meo will discuss commercial real estate, including commercial real estate valuations, cash flow analysis, due diligence, geographic areas to buy, sell and hold commercial real estate, and more. Mr. Meo is a licensed Commercial Real Estate Agent with Keller Williams Realty and has years of extensive experience in real estate sales, brokerage, development, and investment.

In addition, Jason S. Buckingham, Esq. who is with the Law Offices of Jason S. Buckingham, Inc. and is President and Chief Executive Officer of Buckingham Commercial Real Estate Services will discuss "self-directed tenant-in-common investments — real estate TICS for the small investor." Mr. Buckingham also has an extensive background in title insurance and escrow services and would be happy to take any questions on these issues as well.

Co-hosts Bill Exeter and Sam Lee will provide an update on the mortgage and credit markets and will discuss year-end tax planning with 1031 exchanges, including strategies to deal with 1031 exchanges that fail toward the end of the year.

You can learn more at http://www.exetergroupradio.com/ for information on how to listen live or to prior recorded shows.

The Exeter Group Real Estate Talk Radio Show for Monday, December 3, 2007

Monday, December 3, 2007 Radio Show

This week Jason S. Buckingham, Esq. who is with the Law Offices of Jason S. Buckingham, Inc. and is President and Chief Executive Officer of Buckingham Commercial Real Estate Services will discuss "self-directed tenant-in-common investments — real estate TICS for the small investor."

Mr. Buckingham also has an extensive background in title insurance and escrow services and would be happy to take any questions on these issues as well.

Co-hosts Bill Exeter and Sam Lee will provide an update on the mortgage and credit markets and will discuss year-end tax planning with 1031 exchanges, including strategies to deal with 1031 exchanges that fail toward the end of the year.

You can review show dates, times and topics as well as listen to prior shows at http://www.exeter1031.com/radio_topics_show_dates.aspx.

The Exeter Group Real Estate Talk Radio Show for November 26, 2007

The Exeter Group Real Estate Talk Radio Show is live each and every Monday from 12:00 noon PST to 1:00 PM PST. The show explores and debates real estate-related subjects and issues in a way that both entertains and informs its listening audience.

"Looking for answers in real estate? We break it down for you."

Oil and Gas Investments

This week Certified Estate Advisor Rusty Tweed who is President, Chief Executive Officer and Founder of Tweed Financial Services, Inc. once again joins The Exeter Group Real Estate Talk Radio Show. The discussion will focus on real estate oil and gas interests, including drilling, existing and wildcat operations, as well as producing, royalty and working oil and gas interests.

Rusty will be joined by Chad Willis who is the Founder, President and Director of Texas Energy Holdings, Inc. and an expert in the structuring of oil and gas investment transactions.

Year End Planning with 1031 Exchanges

In addition to oil and gas investments, Mr. Exeter and Mr. Lee will discuss the various year-end planning opportunities available with 1031 exchanges.

Listen to The Exeter Group Real Estate Talk Radio Show Live

Visit our web page http://www.exeter1031.com/radio_topics_show_dates.aspx for information on how to tune in for this week's show.

Sample Legal Beneficiary Vesting for Seller Carry Back Notes

When you sell real estate or personal property that will be part of a 1031 exchange and you carry back an installment note (seller carry back financing) to facilitate the sale of the asset, the installment note must also be included as part of the 1031 exchange account held by your Qualified Intermediary in order to defer all of your income tax liabilities.

In other words, the note must be owned by and held by your Qualified Intermediary. You can learn more by reading our web page entitled "Seller Carry-Back Financing Combined with a 1031 Exchange."

The procedure to include the seller carry-back installment note as part of your 1031 exchange account is actually very easy. The installment note and the corresponding deed of trust or mortgage documents would be drafted with the Qualified Intermediary listed as the beneficiary or owner.

The installment note and corresponding documents cannot be drafted with your name listed as the beneficiary or owner. The documents must be drafted in the name of the Qualified Intermediary so that the Qualified Intermediary owns the installment note as part of your 1031 exchange account.

Drafting the note in your name will trigger "constructive receipt" of your 1031 exchanges funds or assets and create a taxable event.

Notes incorrectly drafted with your name as the beneficiary or owner cannot be corrected after the close of the transaction and generally will be treated as boot and taxed as an installment sale note under Section 453 of the Internal Revenue Code.

The following is the legal beneficiary vesting used on the installment note and corresponding deed of trust or mortgage when we adminster a tax-deferred exchange transaction:

Exeter 1031 Exchange Services, LLC,
as Qualified Intermediary for Exchange No. 00 0000
for the benefit of Jane Doe
402 West Broadway, Suite 400
San Diego, California 92101

Of course, this would not be required if you do not want to include the seller carry back note as part of your 1031 exchange and would prefer to treat it as an installment sale under Section 453 of the Internal Revenue Code. The documents would then be drafted with your name listed as the beneficiary or owner.

You can learn more at http://www.exeter1031.com/seller_carry_back_legal_vesting.aspx.

Seller Carry Back Note Combined with a 1031 Exchange

You may be requested by real estate buyers from time-to-time to assist them in the acquisition of your real property ("relinquished property") by helping them with the financing.

This means they are asking you to carry back an installment note or promissory note, which is often referred to as "Seller Financing," "Seller Carry Back Financing," or a "Seller Carry Back Note."

Seller carry back promissory notes can be very powerful sales tools when negotiating and structuring real estate transactions, especially in rising interest rate environments, distressed real estate markets and tight credit markets.

This type of financing can also be a very effective income tax planning and/or estate tax planning strategy for you if you do not want to 1031 Exchange into other like-kind replacement properties.

However, seller carry back financing can complicate a 1031 exchange transaction if you are planning on selling investment property and then 1031 exchanging into other like-kind replacement property.

You can learn more about this strategy and the related complications at http://www.exeter1031.com/seller_carry_back_financing.aspx.

Why Would You Use A Reverse 1031 Exchange?

The real estate market has changed considerably over the last few years, especially the residential real property market. The amount of real property inventory on the market has increased significantly because properties are taking much longer to sell. And, the market is also showing an increase in the number of properties that are falling out of escrow, therefore creating additional obstacles for 1031 Exchange transactions.

Real estate markets like this make planning, structuring and coordinating 1031 Exchange transactions even more challenging. It can also make you feel like you have lost control of your 1031 Exchange, especially if you have already lined up the acquisition of your like-kind replacement property and are having difficulty getting buyers excited about purchasing your relinquished property.

It's Time to Regain Control of Your 1031 Exchange

Fortunately, help is available. There is a 1031 Exchange strategy that can alleviate some of the risks associated with structuring your 1031 Exchange transaction in challenging real estate markets such as this.

It's called a Reverse 1031 Exchange.

The Reverse 1031 Exchange can help put you back in the drivers seat and in control of your 1031 Exchange transaction. The Reverse 1031 Exchange allows you take as much time as you need to locate and acquire suitable like-kind replacement property first with out worrying about the 1031 Exchange deadlines associated with a Forward 1031 Exchange.

One of the most difficult challenges with a Forward 1031 Exchange is meeting the required 1031 Exchange deadlines. However, when you acquire your like-kind replacement property first through a Reverse 1031 Exchange your 45 calendar day identification period is generally not an issue.

Reasons to Use a Reverse 1031 Exchange

There are many reasons why you might find yourself in a position where you must acquire or would prefer to acquire your like-kind replacement property first before the sale of your relinquished property using a Reverse 1031 Exchange. Some of the reasons include:

Perhaps you just want to eliminate the stress (and risk) involved with the stringent and restrictive 1031 Exchange deadlines by taking advantage of the Reverse 1031 Exchange strategy and acquiring your like-kind replacement property first.

Or, you might unexpectedly stumble upon an investment opportunity that you must acquire and close on before you even have time to consider selling your relinquished property.

The sale of your relinquished property may unexpectedly collapse and you may not want to risk losing your like-kind replacement property and must therefore proceed with the acquisition.

Institutional investors often structure each and every acquisition as a Reverse 1031 Exchange and then subsequently decide whether they will sell and match any relinquished properties as part of their Reverse 1031 Exchange. Many investors have switched to this strategy exclusively in order to provide them with more flexibility when structuring real estate acquisitions.

It Can Also Reduce Your Risk

Regardless of your reason, you can reduce your risk by using the Reverse 1031 Exchange because you acquire your like-kind replacement property first, and then you have 45 calendar days to identify which relinquished property you intend to sell, and you have another 135 calendar days for a total of 180 calendar days to complete and close on the sale of your relinquished property.

Once you have acquired and "parked" title to your like-kind replacement property with your Qualified Intermediary or Accommodator you only have to worry about selling your relinquished property within the prescribed 1031 Exchange deadlines.

And, should your relinquished property not sell or close prior to the end of your 180 calendar day deadline, you do not have any income tax consequences to worry about because your relinquished property has not been sold! The Reverse 1031 Exchange would be collapsed and you will end up owning both properties, but you will not have any income tax liabilities to worry about since you have not sold your relinquished property.

You can learn more about Reverse 1031 Exchanges by reading our articles entitled Overview of Reverse 1031 Exchanges and Introduction to Reverse 1031 Exchanges for more complete and in depth information on Reverse 1031 Exchange transactions.

The Exeter Group Real Estate Talk Radio Show for November 19, 2007

The Exeter Group Real Estate Talk Radio Show is live each and every Monday from 12:00 noon to 1:00 PM Pacific Standard/Daylight Time. Here are the topics to this Monday's show.

Monday, November 19, 2007

Don Meredith, Director of West Coast Operations, Concorde Exchange Group returned to discuss commercial real estate, the state of the commercial real estate market versus the residential market, and TIC investment property interests.

Baxter Scruggs, managing partner, San Diego Mortgage Network joins us again to update us on the current state of the mortgage finance industry and will provide us with some useful tips in dealing with the current financial market conditions.

Click here to listen live this coming Monday.

Small Business Administration (SBA) Offers Disaster Assistance for California Fire Victims

The SBA provides various types of loans for businesses of all sizes and homeowners and renters in the event of a disaster such as the California wildfire disasters. This includes physical disaster loans, economic injury loans, military reservists' loans and home and personal property loans. Included is the contact information for the SBA's field offices, customer service center and process and disbursement center. Read more.

Treasury Inspector General Issues Audit Report on 1031 Exchanges

The Treasury Inspector General has completed an internal audit at the IRS over 1031 Exchange administration. The Treasury Inspector General has issued his report and has recommended that the IRS significantly increase its supervision and review of 1031 exchange transactions, do a better job of defining vacation property and second homes and their qualifications under the 1031 exchange, and revamp and clarify its Form 8824 for use in reporting 1031 exchanges. You can download a copy of the report at: http://www.exeter1031.com/irs_code_regulations_rulings.aspx.

The Exeter Group Real Estate Talk Radio Show for November 12, 2007

The Exeter Group Real Estate Talk Radio Show will be discussing whether selling property and just paying the taxes might be a better strategy for you with Jim Shaw, president and chief executive officer, CapHarbor, LLC. He joins us to break down the commercial real estate markets, including a discussion on tax rates and whether it is a good time to take your chips off the table and just pay the taxes or continue to invest and defer your income taxes via a 1031 exchange.

And, we will be discussing title insurance issues with Dwight S. Helmer, Esq., who is a California Attorney-At-Law. He has been in the title insurance industry since 1972 and has considerable experience as a senior title insurance underwriting attorney. Dwight joins The Exeter Group for the first time to bring his title insurance expertise to our listeners. This is your chance to call in with questions that have stumped you about title insurance underwriting issues.

You can learn more about The Exeter Group Real Estate Talk Radio Show at http://www.exeter1031.com/radio_topics_show_dates.aspx.

Summary of Tax Relief Provisions for California Wildfire Disaster Victims

We have just completed the next edition of The Exeter Exchange Newsletter with a concise summary of the tax-relief provisions available to the victims in the Southern California Wildfire disaster.

You can download your copy at http://www.exeterco.com/pdfs/The_Exeter_Exchange_Newsletter_Volume_One_Issue_2.pdf or call (866) 393-8377 for you hardcopy.

The Exeter Group Real Estate Talk Radio Recorded Shows

You can listen to prior recorded versions of The Exeter Group Real Estate Talk Radio Show at http://www.exeter1031.com/radio_topics_show_dates.aspx.

Revisiting Year-End Planning for Failed 1031 Exchanges

It seems like it was just January 2007. Where did 2007 go? We have less than two months to go before we celebrate the new year, so it is now time to discuss year-end tax planning for 1031 exchange transactions that have failed.

What happens when a 1031 exchange starts toward the latter part of 2007, but fails because the investor could not find and identify suitable like-kind replacement property or was not able to actually acquire the property identified?

Failed 1031 exchanges become taxable. The question is in which year is the depreciation recapture and capital gain recognized and taxable? The answer depends on when the investor has the legal right to access the 1031 exchange funds.

If the 45 calendar day identification period and/or the 180 calendar day exchange period end in the following income tax year and the Tax Deferred Exchange Agreement contain the appropriate language, the depreciation recapture would be recognized and taxable in the year of sale and the capital gain would be recognized and taxable in the following year when the investor has the legal right to access the funds.

Learn more at: http://www.exeter1031.com/articles_failed_1031_exchange.aspx.

Time to Change the Clocks: Day Light Saving Time Ends

Don't forget to change your clocks tonight. We "fall back" by one hour.

IRS extends 45 and 180 Day 1031 Exchange Deadlines for 2007 Southern California Wildfire Disaster Victims

The IRS has announced tax relief for victims of the 2007 California wildfire disaster that includes the extension of 1031 exchange deadlines or due dates if the deadline begins on or after October 21, 2007.

Your 45 calendar day identification period and your 180 calendar day 1031 exchange deadline will be extended to January 31, 2008 as long as your are located in one of the affected seven (7) Southern California counties.

You can read the full IRS press release at http://www.exeterco.com/news_irs_issues_tax_relief_2007_california_fire_victims.aspx for complete details.

Mr. Exeter to be featured on The Financial Advisors Talk Show

Mr. Exeter will be a featured guest expert on The Financial Advisors' Money Talk Radio Show, which is live each and every Saturday morning at 7:00 AM to 9:00 AM on San Diego News and Talk Radio AM 600 KOGO with host Aubrey Morrow, CFP, with Financial Designs, Ltd.

Mr. Exeter will be discussing the various tax relief efforts announced by the IRS and the California FTB for the California wildfire disaster victims.

Rand Sperry, president and chief executive officer, Sperry Van Ness will be the special guest expert with Mr. Exeter.

Call ins are welcome, so call (800) 600-KOGO with your commercial real estate and/or 1031 exchange related question and get an expert to respond on the air. You can visit the following website to learn more and listen live via the internet: http://www.exeter1031.com/Seminars.aspx for more complete details.

California Wildfire Victims: Insured vs. Uninsured Losses

Uninsured Losses

Uninsured disaster victims can use the Federal Emergency Management Agency (FEMA) appraisal of their loss to document their tax loss. No loss can be taken until reimbursement claims have been settled. The measure of the loss is the lesser of the decline in fair-market value or adjusted basis, not replacement cost.

The IRS and the California Franchise Tax Board will allow victims to receive additional and immediate tax refunds this year by immediately reporting their disaster losses through amended 2006 returns.

Insured Losses

Insured disaster victims often value their personal property at replacement cost because that is the number insurance companies often use. While the IRS will want to limit the value to thrift store values, the courts have allowed taxpayers to rebut that assumption and prevail.

Insured disaster victims may have an economic loss if their insurance companies won't settle with them for the replacement cost of their real and personal property. They generally don't have a tax loss because the depreciated value of their contents is less than their insurance settlement proceeds. Policy reformation is possible and disaster victims should work with organizations such as CARE and United Policy Holders to ensure a fair settlement.

You can go to http://www.exeter1031.com/income_tax_relief_for_victims_wild_fires.aspx for more complete details regarding tax relief for the California Wildfires.

Federal Reserve Cuts Fed Funds Rate by .25% to 4.5%

The Federal Reserve just announced that it cut the Fed Funds Rate by .25% to 4.50%.

IRS Grants Tax Relief to Southern California Fire Disaster Victims

October 29, 2007--SAN DIEGO--The Internal Revenue Service today announced tax relief for California taxpayers in the Presidential Disaster Area struck by severe wildfires beginning on Oct. 21, 2007. The disaster area consists of the following counties: Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura.

You can read the full press release at http://www.exeterco.com/news_irs_issues_tax_relief_2007_california_fire_victims.aspx

Tax Relief Assistance to be Discussed on The Exeter Group Real Estate Talk Radio

There are many different tax relief assistance programs available, and trying to decide which is right for you can be difficult. The Exeter Group Real Estate Talk Radio Show will be discussing the various tax-deferral and tax-exclusion options available for the victims of the Southern California wildfire disaster. You can visit The Exeter Group Real Estate Talk Radio Show on their web site at http://www.exetergroupradio.com for more complete details, show times and access information.

Why Suffering the Pain in the Housing Market Now Is Important

I stumbled upon this post by The Real Estate Bloggers and thought that it was right on the money and was worthy of a repost.

One of my biggest fears is that politicians are going to try to soften the blows to the housing market over the next election year. I have preached about the law of unintended consequences and I truly believe that almost any action out of Washington will create more heartache rather than less.

Writer John Baden is able to put it into terms much more eloquently than I can, but the general thoughts are still there. Essentially, stupid people made stupid loans to stupid people. Undoing this mess is going to be painful, but like pulling a bandage off, faster is usually better. A long drawn out affair softened by government intervention will just extend and compound the pain the housing market will feel.

A society’s economic success is increased if it has sure and quick ways to accomplish this separation, however painful to those who suffer losses. While there will be political pressures to buffer folks from the consequences of economic folly or bad luck, it is socially dangerous to do so. Reality checks should have force, so that those who fail to prudently manage resources will not keep control over them.

My banker friend and FREE board member Leon Royer recently wrote: “Too many people (borrowers, bankers, investors and investment bankers) have done too many dumb things for this situation to be resolved without substantial pain disbursed over many folks. No optimistic happy talk will change the curing time; it’s likely measured in years.”

Economist Peter Linneman nailed it more harshly in “Making Sense of the Current Capital Markets Disarray.” He observed: “As for the idiots who lent (often without down payments or documents) to the idiots who bought speculative homes, they deserve to lose. People must understand this simple fact.”

Our pressing danger is not that many folks will go broke, but rather that opportunistic politicians will bail them out and insulate them from past and future folly. We need to find and support those who instead recognize the ecological question: “If correction is not swift, then what will follow?” The longer we wait for a correction, the more massive and painful their suffering — and ours — ultimately must be. That’s the way the world works. via TCS Daily

This post was reposted from The Real Estate Bloggers.

IRS Issues Initial Announcement Re: Tax Relief Help for S. California Fire Victims

The Internal Revenue Service is closely watching the situation in Southern California and will soon issue specific guidance for victims of the wildfires.

In the meantime, if you own property damaged by fire in the presidential disaster area, you have a choice: You may claim uninsured or unreimbursed disaster losses by filing an amended 2006 tax return or you may wait and claim any losses on your 2007 return.

You can visit http://www.exeterco.com/income_tax_relief_for_victims_wild_fires.aspx for complete information and details.

Update on Sale of Second Homes: Potential Changes to Section 121

The mortgage relief bill that Congress is working on now will also include a provision that will tighten up the rules under which you can apply the Section 121 tax-free exclusion to the sale of your second home.

Essentially, the way it is written in its present form (which can always change until it is passed), the tax code would be changed to tax a portion of the gain received from the sale of your second home based on the percentage or amount of time that the second home was used as a second home compared to a primary residence between 12/31/2007 and the time that it is sold.

You may want to consider making some changes to your primary residence before 12/31/2007 depending on which properties have the greatest capital gain in them.

Still Waiting for Tax Relief Announcement from IRS

Tax Relief due to the 2007 Southern California wildfires has not been issued by the IRS at this point in time. We do expect a tax relief announcement shortly that will include extending the 1031 Exchange deadlines for the 45 day identification period and the 180 day exchange due date.

You can view updated announcements at http://www.exeterco.com/AE_Wire.aspx or read more about the various disaster relief announcements for the 2007 Southern California wildfires at http://www.exeterco.com/income_tax_relief_for_victims_wild_fires.aspx for more complete details.

Tax Relief Announced by California Franchise Tax Board

The Franchise Tax Board (FTB) today announced several relief measures for the victims of wildfires in seven Southern California Counties.

The FTB will allow victims to receive additional tax refunds this year by immediately reporting their disaster losses through amended 2006 returns. In addition, the FTB has temporarily suspended mailing billing notices in the seven Southern California counties affected by wildfires.

"The victims of the Southern California fires need to know they can turn to the State for immediate help," said State Controller and FTB Chair John Chiang. "By claiming a disaster loss on last year’s taxes, those who lost their homes or suffered property damages can get additional funds to help them through this tragedy."

Affected taxpayers may also claim the disaster loss on their 2007 tax return that are due to be filed in spring.

The affected counties include Santa Barbara, Ventura, Los Angeles, San Bernardino, Orange, Riverside, and San Diego in the declared state and federal disaster area.

You can review more complete details and tax relief announcements at http://www.exeterco.com/income_tax_relief_for_victims_wild_fires.aspx

Property Tax Relief for California Fire Disaster Victims

County Tax Relief Announcements

Los Angeles County Tax Assessor Rick Auerbach announced that real property owners will be able to defer and reduce real property taxes for those whose homes suffered damage in excess of $10,000.00.

Orange County Tax Assessor has not issued any announcements at this point in time.

Riverside County Tax Assessor-Clerk-Recorder Larry Ward and Riverside County Treasurer-Tax Collector Paul McDonnell have teamed up to provide immediate real property tax relief for fire victims in response to the California fire disaster.

San Bernardino County Tax Assessor Bill Postmus announced that real property tax relief will be available for victims of the devastating California wildfires that have ravaged residents of San Bernardino County.

San Diego County Tax Assessor has not issued any announcements at this point in time, but has posted information and frequently asked questions regarding obtaining real property tax relief for victims of the California wildfires.

Santa Barbara County Tax Assessor has not issued any announcements at this point in time.

Ventura County Tax Assessor has not issued any announcements, but has posted information regarding obtaining real property tax relief for the California wildfires.

You can obtain updated information at anytime by visiting http://www.exeterco.com/income_tax_relief_for_victims_wild_fires.aspx.

Tax Relief Announced by California State Board of Equalization

The California State Board of Equalization (BOE) reminded taxpayers that emergency sales tax relief is available in the counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara, and Ventura due to the California wildfires. Tax relief may include extending filing sales and use tax return dates, relieving penalties and interest, or replacing copies of records lost to fire damage. Read more.

President Bush Signs Disaster Declaration for California Wild Fire Victims

President Bush stepped up federal engagement in the California wildfire emergency Wednesday, signing a major disaster declaration that funnels money to people whose property losses aren't covered by insurance. Read more.

Gain from the Destruction of your Primary Residence (Tax-Free Exclusion)

This post continues my discussion regarding the California wild fires and income tax relief and strategies available to the fire storm victims.

Homeowners who are insured and lose their principal residence can exclude from their taxable income up to $250,000 in capital gains per person ($500,000 for a married couple) pursuant to Section 121 of the Internal Revenue Code. The gain, if any, above the $250,000/$500,000 exclusion limitation can be reinvested in like-kind replacement property on a tax-deferred basis under Section 1033.

The insurance proceeds that you receive for your personal property contents is tax exempt.

Because a natural disaster such as the California wild fires is considered an unforeseen circumstance, disaster victims who lived in their primary residence less than the required two (2) years are able to take a partial tax-free exclusion under Section 121. 

Income Tax Relief for Victims of 2007 Southern California Wild Fires

The Internal Revenue Service (IRS) and the Franchise Tax Board (FTB) will be issuing guidance and notices shortly regarding relief for victims of the 2007 Southern California wild fires affecting the San Diego, Orange, Los Angeles, Riverside and San Bernardino areas.

I will be posting any and all relief notices here to assist wild fire victims in obtaining badly needed relief. Exeter 1031 Exchange Services, LLC will be posting all income tax relief notices for wild fire victims and fire storm related issues on its Exeter News Wire and has created a web page specifically for income tax relief information related to the Southern California wild fires.

Southern California Fire Storms

I am just one of over 300,000 people that have been directly affected by the Southern California wild fires. This will give everyone an update on our situation, but will also lay the ground work for my next few daily posts with news and announcements regarding assistance for Southern California fire victims, especially in terms of income tax relief.

We were evacuated from our home in Ramona on Sunday evening. I don’t know if you ever saw the movie Dante’s Peak, but it reminded me a lot of that movie. It was dark, lots of bright flames all around on the hill tops, way too much smoke so that it was difficult to breathe.

It was a mandatory evacuation with the fire about 2 miles away. We almost went to our friend’s home that was at the far west side of Ramona but decided to go down the hill and stay in a Marriott Residence Inn (they take animals by the way) off the 15 Fwy.

The fire was moving so fast that our friend was actually evacuated only 45 minutes later and was out before we even made it to the hotel. We were evacuated again from the hotel yesterday morning (we woke up with smoke in our room) and thought we would stay in a hotel in downtown SD, but everything is sold out.

We joined up with my fiance's family that is staying in motor homes and fifth wheels in the Wal-Mart parking lot. We thought we would be evacuating again last night because the fire crested the hill next to us, in front of us and behind us, but it retreated and I’m back at the office today.

It feels like I have smoked 100 cigars by this point, but thankfully we are all O.K. and our homes are O.K. at this point in time. They are beginning to talk about letting some people back into certain areas, but I doubt that will happen until tomorrow.

The Internal Revenue Service and the Franchise Tax Board will be issuing a number of notices shortly with income tax relief for victims of the Southern California fire storms, including San Diego County, Orange County, Los Angeles County, Riverside County and San Bernardino County.

I will be posting this relief on this blog as well on our Exeter Discussion Board.

Special Year End 1031 Exchange Considerations

The end of the year is almost upon us. So, I thought this would be a good time to start a thread on special considerations that need to be taken into account when completing a 1031 exchange at year end or that may over lap into the following year. There are a number of special 1031 exchange planning issues that you should be aware of.

This thread will expand on these issues and answer any questions that you might have regarding year end planning and 1031 exchanges. I will post each issue as a separate post in the next couple of days. In the meantime, here is a link to the Exeter 1031 Exchange Resource Library where you will find numerous articles on 1031 exchanges, including deadlines and year-end planning issues: http://www.exeter1031.com/EEL_ArticlesPublicationTechnicalReference.aspx.

Exeter Discussion Board Reaches New Milestone

I am very excited to announce that our Exeter Discussion Board launched only 2 and a half months ago has already achieve 10,000 unique visitors, over 300 individual posts, 82 registered users and 11 separate Forums on various real estate related subjects. This has surpassed what we thought the new Exeter Discussion Board would accomplish in such a short period of time.

The Exeter Discussion Board is designed to allow you to ask questions, discuss issues, and debate real estate related topic in order to help you make better informed real estate investment decisions.

We currently have 11 separate Forums, including:

1031 Exchange Structures
Real Estate Financing
Escrow Closing
TIC Investments
Exeter Group Radio
Real Estate Tax Issues
REI Investor Clubs
Real Estate Legal Issues
Asset Management and Property Management
Exeter 1031 Exchange News, Announcements, & Issues
Looking for Like-Kind Replacement Property for your 1031 Exchange

You are invited to participate free of charge at http://www.exeterboard.com and please let me know how we can improve the Exeter Discussion Board to better serve you.

Mr. Exeter to Speak at the CORE Academy

CORE Realty Holdings sponsors and produces the CORE Academy a number of times each year. CORE Academy is a great educational program designed to train TIC investment property brokers on a variety of 1031 TIC investment related issues, including 1031 exchange requirements.

Mr. Exeter will be speaking on the requirements, structures, strategies, compliance issues, and more. For more information, Google CORE Realty Holdings.

1031 Exchange Due Dates: Special Considerations at Year-End

1031 Exchange Deadlines and Due Dates

The successful completion of your 1031 Exchange transaction requires you to comply with certain 1031 Exchange deadlines and due dates. The 1031 Exchange deadlines consist of the 45 calendar day identification deadline and the 180 calendar day (or less) 1031 Exchange period.

These 1031 Exchange deadlines and due dates can not be extended under any circumstances, unless the President of the United States declares a natural disaster area that affects the properties or parties involved with the 1031 exchange transaction. So, it is important that you are aware of the 1031 Exchange due dates required to successfully complete your 1031 Exchange transaction.

Year-End 1031 Exchange and Income Tax Planning

Year-end is rapidly approaching and there is a little known 1031 Exchange deadline that you may not be aware of when completing a 1031 exchange, which I eluded to above when I referenced the "or less" provision. This exception to the 1031 Exchange deadlines only applies to you if you sell and close on your relinquished property (sale) transaction between October 17th and December 31st of any given income tax year.

You must complete your 1031 Exchange transaction, which includes the conveyance (receipt) of legal title to all of your like-kind replacement properties that you intend to acquire, no later than the earlier of:

(1) midnight of the 180th calendar day following the close of the relinquished property (sale) transaction, or

(2) the due date of your Federal income tax return for the tax year in which the relinquished property was sold, including any extensions of time to file.

You do not need to be concerned about part (2) above unless the first relinquished property transaction sold and closed on or after October 17th and on or before December 31st of any given tax year, which would mean that the 180th calendar day would fall after April 15.

You can easily work around this requirement by filing an extension of time to file your income tax returns, then completing your 1031 exchange transaction, and then filing your income tax returns. It is important that you do not file your income tax return prior to completing your 1031 exchange.

You can learn more about this requirement at: http://www.exeterco.com/1031_exchange_deadlines.aspx

1031 Exchange of Foreign Property

Can you acquire (sell) and/or purchase (buy) foreign real property and qualify for 1031 exchange treatment? This question is becoming more common as our world becomes a smaller place to live. We are becoming a more global economy each and every year, and income tax considerations become more complicated with the continued increase in cross border investment transactions.

The answer to the question is yes. You can 1031 exchange foreign real property (non-domestic) for foreign real property (non-domestic) and qualify for 1031 exchange treatment.

You can not 1031 exchange foreign real property (non-domestic) for United States real property (domestic) because domestic and foreign real property is not considered to be like-kind.

It will make sense to do so if the sale of your foreign real property or foreign asset will result in the recognition of a U.S. capital gain tax. You can defer the payment of the U.S. capital gain income tax consequence by completing a 1031 exchange transaction, but it must be an exchange of foreign real property for foreign real property.

Please feel free to contact me for more complete information regarding 1031 exchanges of foreign property.

Seller Carry Back Notes and 1031 Exchanges

There have not been very many seller carry back notes over the last few years, but we are beginning to see more seller carry back financing strategies as interest rates have been adjusting over the last few months and we expect that this trend in seller carry back notes will continue to grow over the next couple of years.

Seller carry back notes can be very powerful transactional strategies when structuring real estate transactions in challenging real estate markets like we are experiencing today. Seller carry back financing structures can significantly complicate a 1031 exchange transaction.

You should consult with your legal, financial and income tax advisors and your 1031 exchange qualified intermediary before you finalize the terms of the sale of your relinquished property. Seller carry back notes require special planning and drafting when involved within a 1031 exchange transaction.

You might want to read my article on Seller Carry Back Notes or Financings in a 1031 Exchange at http://www.exeter1031.com/seller_carry_back_financing.aspx for more complete details.

California Escrow Association

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.

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.

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.

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.

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 Exeter Group Real Estate Talk Radio Show Launched

Exeter Exchange Management Corporation, an affiliate of Exeter 1031 Exchange Services, LLC, and in conjunction with The Exeter Learning Institute launched The Exeter Group, a live internet based real estate talk radio show.

The radio talk show will focus exclusively on local, regional and national real estate related topics designed to assist real estate investors in keeping abreast of industry and market forces. The program content will include real estate transactional and structural discussions, legislative and regulatory issues, current industry trends and developments, as well as economic forecasts.

The program will include an impressive lineup of guest experts that will provide relevant and timely real estate advice, discussion and information. Our goal is to develop and deliver a professional, educational and informative internet radio talk show experience with dynamic and robust real estate program content for the listening audience.

The radio talk show will be branded under The Exeter Group™ brand name and is part of The Exeter Learning Institute's continuing efforts to educate and inform real estate investors so they can make educated and informed investment decisions.

You can view posts, announcements and access information regarding The Exeter Group Radio Show, including its weekly guest experts, on the Exeter Discussion Board under Exeter Group Radio.

Exeter Discussion Board Launched by Exeter Learning Institute

Exeter 1031 Exchange Services, LLC launched its Exeter Discussion Board. The Exeter Discussion Board provides a venue for real estate investors to ask questions or discuss issues on real estate related topics such as: 1031 exchanges, financing, asset management, property management, escrow and closings, TIC Investments, Exeter Group Radio, real estate legal and tax issues.

"The Exeter Discussion Board will include an impressive lineup of guest experts that will provide relevant and timely answers and advice for those who post questions. Our goal is to develop and deliver a professional, educational and informative forum with dynamic and robust discussions on real estate related issues, including discussions on requirements, structures, processes, strategies, and compliance issues necessary to successfully complete real estate transactons.

The Exeter Discussion Board is part of The Exeter Learning Institute's continuing efforts to educate and inform real estate investors so they can make educated and informed investment decisions.

The Exeter Exchange Newsletter Launched

I am very excited to announce that we have launched The Exeter Exchange™ Newsletter. This is the newest educational content piece to be written, produced and published by The Exeter Learning Institute as part of its efforts to educate real estate investors so that they can make better informed real estate investment decisions.

Our goal is to develop and deliver a professional, educational and informative newsletter with dynamic and robust articles on 1031 Exchange and real estate related issues, especially discussions on requirements, structures, processes, strategies, and compliance issues necessary to successfully complete 1031 Exchange transactons.

Read, view and download prior editions of The Exeter Exchange™ Newsletter in PDF format.

Update Regarding Recent Problems in the 1031 Exchange Industry

First, I want to reiterate my prior comments in my last post because I think it is extremely important for investors to keep the recent 1031 exchange Qualified Intermediary losses in perspective in terms of the entire industry.

The losses are horrific and terrible, but it is important to note that the two current problems in the 1031 exchange industry are directly related to two "outsiders" that specifically bought their way into the 1031 exchange industry by acquiring a number of 1031 exchange Qualified Intermediaries specifically to "borrow" or "use" the 1031 exchange fiduciary funds for their own financial gain.

Discussion seems to be centering around whether these losses and risks with in the 1031 exchange industry in general are related to the size of the Qualified Intermediary.

This is not a big vs. small Qualified Intermediary issue. It is about the prudent management and investment of client fiduciary funds. Internal controls are critical and should be mandatory. The administration of client 1031 exchange accounts (1031 exchange administration) should be completely separate from fiduciary accounting and funds management (1031 exchange operations) with different managers responsible for both in order to create sufficient checks and balances.

And, finally, investors need to ask the right questions. Quiz prospective Qualified Intermediaries regarding their insurance and bonding coverage, ask for proof AND CALL to verify the coverage - never assume. Ask detailed questions about the Qualified Intermediary’s internal controls, funds management, and separate of responsibilities.

Recent Concerns Re: Choosing A 1031 Exchange Qualified Intermediary

There has been much written by the press recently regarding the selection of a qualified intermediary for your 1031 exchange transaction. The focus of the media has been on two (2) recent problems with qualified intermediaries. They do not fully explain that the two problem QI's were acquired by problem individuals over the last two (2) years. These two individuals acquired the 1031 exchange companies specifically to use client 1031 exchange funds to finance other operations and they got caught. It is unfortunate that two (2) individuals have cause so much harm to innocent parties for the rest of the solid 1031 exchange companies operating in the industry.

I thought that it would be a good time to revist what to look for when evaluating and selecting your qualified intermediary.

The 1031 exchange Qualified Intermediary (often referred to in the real estate industry as an Accommodator or Facilitator) is a crucial part of any successful 1031 exchange transaction. You should therefore exercise significant care when choosing your own Qualified Intermediary because of the critical role it will play in administering your 1031 exchange transaction.

The purpose of this article is to assist you, as a potential Exchangor, in developing an understanding of the risks involved in selecting your Qualified Intermediary and the questions to ask as part of your due diligence. The due diligence process should not be taken lightly.