The qualified intermediary (QI) is an entity or individual independent of the exchangor and not deemed to be its agent, either objectively or subjectively. What is the role of the qualified intermediary in an exchange? The seller reserves the option to convert the subject transaction to qualify under IRC section 1031 with the purchaser agreeing to cooperate in the execution of any of the required documentation (including but not limited to a four-party deferred exchange agreement and a qualified intermediary agreement), provided the purchaser shall incur no additional cost or liability.ДҐ. The paper trail for this documentation should begin with the original purchase and sale agreement, which could contain a clause such as: As a result, the structuring of a deferred real property exchange requires documentation to support an interdependent and integrated transaction with the sale proceeds not being paid to the exchangor at the settlement date (or held in escrow). If an exchangor actually or constructively receives non-like-kind property known as boot (e.g., money or personal property) for the relinquished property anytime before receiving the like-kind replacement property, the transaction is a sale and not a deferred exchange. Which real estate is not eligible for section 1031? This postponement will become a cancellation of the gain to the extent of the step-up in basis received by the heirs at death for property held in the decedentвЂ™s name.ДЈ.

This postponement of tax can be continued with successive exchanges (stemming from the original property that was relinquished). An involuntary conversion as a result of an eminent domain proceeding under IRC 1033(g), however, is an exception to this sectionвЂ™s like-use requirement and uses a like-kind standard similar to section 1031. This means that if a restaurant is destroyed by fire, the insurance proceeds must be used to purchase or build another one. In contrast, the standard for replacement property from an involuntary conversion under IRC section 1033 is a much narrower one: like-use. If non-like-kind property is received (including any debt relief at the end of the exchange), there will be partial gain recognition there is no all-or-nothing requirement of rolling over all of the equity and existing debt to the replacement realty. Even properties with 30 years remaining on the lease can be exchanged for a fee-simple interest in real estate. Partial interests such as TICвЂ™s, DSTвЂ™s, conservation easements and perpetual mineral or oil rights are exchangeable with other types of real property (including a land contract in which equitable title has been transferred). Qualifying property is broadly defined, for both the relinquished and replacement property: real estate used for investment or business purposes.Д¬onsequently, investment real estate (held for either appreciation or for rental) can be exchanged for real property used in a trade or business. What qualifies as like-kind realty under IRC section 1031?

Under IRC section 1031, an exchange does not include any recapture of tax credits (e.g., low-income housing or rehabilitation credits) that may be applicable if the property being exchanged has not been held for the requisite holding period (15 years for the low-income housing credit).Дў. In evaluating an exchange, the existence of certain tax attributes such as any carryovers (NOL, capital loss, or passive activity losses) needs to be reviewed because their availability may preclude the necessity of using section 1031 for all or part of the transaction. This occurs even when there is a liability-over-basis problem (i.e., when the outstanding principal balance of the mortgage on the property exceeds the realtyвЂ™s adjusted tax basis). By reinvesting the equity and acquiring as much debt on the new property as the mortgage payoff on the disposed real estate, capital gains tax and any IRC section 1250 unrecaptured gain taxable can be completely avoided. Structured properly, this deferred exchange is essentially a subsequent tax-free rollover of the equity (and debt) on the property being relinquished. Under IRC section 1031, a taxpayer is allowed to postpone or defer the taxes on the gain resulting from sale of qualifying real estate by acquiring replacement real property that is identified and purchased within a specific period of time. 1031 Properties for Non-Accredited Investors вЂ“ DST Alternatives.

Irc 1031