1031 Exchange Lowdown

1031 Exchange Webinar

Interested in how you can save money using 1031 exchanges? If so, this webinar might just be the thing for you. The Bayview Financial Exchange Services is hosting a webinar titled “Wealth and Growth through 1031 Tax Deferral Strategies” scheduled on August 17, 2006 between 2 and 3 pm EST. For details on how to register and participate, follow this link.

Nationwide Exchange to Offer 1031 Tax-Deferred Exchange Services for PNC

PNC has selected Nationwide Exchange Services to offer 1031 Tax-Deferred Exchange Services to the customers in the greater Washington, D.C. area. The Section 1031 Exchange is a method of deferring some or all of the capital gain taxes on the sale of an investment asset. It has become necessary in real-estate business in order to defer heavy taxation.

PNC has taken the initiative to address the needs of its customers. Clients will definitely benefit from NES's vast expertise and experience in 1031 tax-deferred exchange field. It is delivered through sophisticated business processes and controls that meet the requirements of the banking industry. NEC will provide PNC customers with an extensive set of tax-deferred 1031 exchange products.

Argus has big plans for 1031 Exchange investors

The popularity of tenants in common property holdings maybe on the rise but some investors still love 1031 exchange investments! So you have even TIC sponsors Argus Realty Investors LP of San Clemente California, make its foray into the hospitality sector targeting this need. The new division called the Argus Hospitality Group is to acquire and develop hotels, hotel condominiums, resorts and country clubs.

Rick Vesci, managing director of the group says that Argus Hospitality Group is already working on a broad spectrum of hospitality industry deals and developments. Vesci seems to bringing his expertise to Argus, as he is former director of resort operations for Prudential/Ryness Co. The new projects being planned are bold and exciting and include an equestrian resort in San Miguel de Allende in Mexico, a rustic adventure resort north of Puerto Vallarta, a ski resort in Deer Valley, UT and a hotel condominium project in Orange County.

These new projects are attractive to 1031 exchange investors as the proposed hotel condominium in Orange County for example has individual condo units could be sold more easily than say, a fractional interest in an office building, according to Vesci. The more flexible exit strategy that an 1031 exchange transaction has compared to a TIC deal is the lure here and investors have more control over investments.

For those on the hunt for of unique ideas of investing in properties - the equestrian resort in Mexico that is being developed by a Mexican developer, with Argus operating in a sale and marketing capacity is worth a look. The best part is that the developer is hoping to net American investors makes it great for Argus, as it is is currently wanting to get into a co developer capacity too. 

Other Argus projects include, the Utah one - a 4,000-acre site that would include three hotels, a golf club and a full ski resort village.

Aim for combined benefits of Sections 121 & 1031

Did you know that you could get the combined benefits of IRS sections 121 and 1031 for your primary residence thanks to amendments made to the IRS Code? It is possible now and it is time to cheer indeed but go about achieving this armed with all the information you can get.

IRS section 121 was amended to provide for a five-year waiting period for property, which was acquired using a1031 exchange. The IRS section 121 provides for the primary residence exclusion. IRC 121 provides for an exclusion of the capital gain tax upon the sale of a principal residence. The maximum exclusion under section121 is $250,000 for those filing as single and $500,000 for those filing a joint return.

In other words, if a business or investment property acquired using an IRC §1031 exchange is later converted to a primary residence the capital gains tax exclusion of IRC §121 can not be applied until the taxpayer has lived in the property as its primary residence for at least 2 years out of a total of 5 years of ownership.

This was not so before and taxpayers had to choose between IRC §121 and IRC §1031 treatment if both were available to them upon a sale of a property from a primary residence to a business or investment use, or vice versa.

Therefore, if you used the property as a primary residence for 3 years then rented the property for 2 years then you will have satisfied the requirements of Section121, which provides that a taxpayer must use the property as a primary residence in two out of the preceding five years; as well as satisfying §1031 by renting out the property for over a year.

That means you can enjoy the benefits of both the Sections now provided property is held for business or investment purposes. So if you have qualified for both Sections 121 and 1031 you should first apply for §121 to the realized gain before applying §1031. The double gain only means more investment fund for the replacement property.

NES Relocates its Office to North Clark Street

Nationwide Exchange Services (NES) has announced the relocation of their Chicago offices to the North Clark Street. NES is a leading qualified Intermediary for 1031 tax-deferred exchanges. It is currently located in Chicago Title Building. The new office is a 6,000 square foot state-of-the-art office space, currently located at 161 North Clark Street in the Chicago Loop. It will house the growing regional staff of NES. The Chicago office location provides local sales and corporate support to the Middle West and East Coast region. It was established as part of the company's ongoing growth plans.

According to Business Wire -

Nationwide Exchange Services is no stranger to growth. In 2006, the company implemented a successful alliance drawing local and regional banks and title companies such as Cole Taylor Bank, Illini Bank, Illinois Bankers Association, Freedom Title, Prairie Title, to name a few.

The Commerce Bank of Oregon to offer 1031 Exchange Products

The Commerce Bank of Oregon has teamed up with Nationwide Exchange Services to handle tax-deferred 1031 exchange business. NES is a qualified Intermediary providing an industry-lending suite of 1031 tax-deferred exchange products for individual investors through major US corporations. Through sophisticated business processes and controls, NES provides the Commerce Bank of Oregon an extensive set of tax-deferred 1031 exchange products at the highest level of client service with minimal start-up costs. The Commerce Bank of Oregon will also have access to a variety of marketing resources provided by NES.

According to Business Wire -

In addition to the broadest set of exchange products, NES offers The Commerce Bank of Oregon with improved flexibility, the 1031 industry's most competitive fee structure, 24/7 account visibility and full regulatory compliance set forth by the OCC (Office of the Comptroller of the Currency) and BSA (Banking Secrecy Act)," stated Al Arthur, Vice President, Financial Industry Sales at Nationwide Exchange Services.

MHI Hospitality Corporation to Sell Williamsburg Holiday Inn

MHI Hospitality Corporation has announced that it has entered into an agreement to sell the Holiday Inn Downtown located in Williamsburg, Virginia. The sell-out package is said to be $4.75 million. MHI will provide $400,000 in a seller-finance note, which will have a security interest in the hotel and a personal guarantee from affiliates of the buyer. The balance of the purchase price will be paid in cash later. The company wants to deploy the proceeds from the sale of the hotel into future projects through a 1031 exchange. LexisNexis has published an article on the Same Topic.

MHI Hospitality Corporation is a self-advised lodging REIT focused on the acquisition, redevelopment and management of mid-scale, upscale, and upper upscale full service hotels in the mid-Atlantic and southeastern United States.

Bayview Launches New Web Site

Bayview Financial Exchange Services, LLC has officially launched its new website at http://www.bayview1031.com/. Bayview is also known as Bayview 1031. The new web site features helpful tools including a 1031 Exchange Calculator and user-friendly handbook. The 1031 calculator allows users to view the tax deferral benefits of completing a 1031 exchange as well as the subsequent power to convert the savings into larger property investments. The new web site also provides a seven-minute video explanation of the 1031 process, which is beneficial for the investors. PR Newswire has published an article on the Same Topic.

The site provides tailored 1031 information for different professional groups such as CPA's, attorneys, financial planners and individual investors.

IRS allows 1031 exchanges among relatives...

Great news for all you 1031 exchange fanatics and for real estate investment owners who are interested in buying or selling to a relative through a 1031 exchange! One of the restrictions under the section 1031 of the IRS has always been that the investor's replacement property could not come from a related party.

In the recent press realease of a private letter ruling (PLR 20040002) the IRS provided taxpayers utilizing code section 1031 with this good news. The IRS informed that a taxpayer could acquire replacement property from a related party in a 1031 Tax-deferred Exchange, if the related party is also doing a 1031 Exchange.

Please note under this letter ruling, both the taxpayer and related party both would hold their replacement properties for at least two years following the exchange. The ruling goes on to say that if either taxpayer has taxable boot in his exchange, this would not blow the whole related party exchange.

Basically, all the remaining 1031 exchange rules stay like they have to be like kind property and the property should be held for at least two years after the exchange and prove good “intent”. So if you having been sitting with no replacement property in sight other than your parents’, which was not allowed to exchanged up till now, just became legal!

It is important to remember that both parties must be doing a 1031 Exchange to qualify this transaction under this ruling. So long as your parents or siblings are also doing a 1031 exchange and not cashing out on this property and everyone is willing to hold their replacement properties for at least 2 years, you’ve got a valid 1031 exchange provided you don’t make a profit out of this deal and all the other rules are met.

TIC owners don't mind lower yield for hassle-free ownership

The zooming real estate market can increase the price of properties that are being dealt as tenant-in-common form of ownership and you could be getting a lower yield than otherwise from this deal. Experts say tenant-in-common owners are now willing to get lower returns on their investment just to avoid paying capital gains tax.

Tax deferment is proving to be too enticing for real estate owners as more and more people gravitate towards 1031 exchanges to tenant-in-common properties. "Because so much cash is chasing deals, you used to be able to buy a piece of an office building and expect an 8% return. Now you'll settle for 6%," says Edward C. Yu, president of Carlton Strategic Ventures, a real estate investment firm in New York.

As the perks of tenant-in-common ownership becomes more clearer to people they find it more attractive especially those who have had tough times being the sole landlord of an apartment building for example. Another reason is that most of these landlords are retirees and understand that relatively much lesser form of maintenance is involved in a tenant-in-common form of ownership.

However, a few worrying things about the tenant-in-common form of ownership needs to be discussed and looked into before blindly diving into being one of many owners of a shopping mall or office tower. First of all you have to find your tenant-in-common property within the 45 days and make sure the deal closes within the 180 days as per the 1031 rules of the IRS.

1.Reselling a tenancy-in-common interest requires approval from the property's mortgage lender, which will want to run its own credit report on the new investor.
2.There may not be a secondary market for such properties
3. Keep in mind that the investors are personally liable on the pool's mortgages
4. It can very expensive in terms of fees (finders fees, broker fees, cost all can add up to 16% to 21%)

However, your taxes are deferred and your heirs could get the benefit of a “step-up” on the basis of your investment and so if they sell, taxes on the gains up until your death are eliminated. Read: "Fleeing the taxman".