Eastern Equity Exchange Corp.
Eastern Equity Exchange Corp.
A Qualifed Intermediary under I.R.C. Section 1031
Eastern Equity Exchange Corp.
Eastern Equity Exchange Corp. is a Qualified Intermediary as defined under IRC Section §1031 with substantial experience handling §1031 tax deferred exchanges.
What is a §1031 Tax Deferred Exchange?
IRC §1031 (a)(1) states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment.”
A §1031 tax deferred exchange is the method by which a taxpayer who owns property which has been held for investment or for use in a trade or business can exchange the property for like kind property which will be held for investment or in connection with a trade or business and defer paying some or all of the federal capital gains taxes. For investments held by individuals, the deferral can continue through any number of exchanges until the tax liability is extinguished by death.
What is “like kind” property?
In a §1031 exchange, “like kind” refers to the nature or character rather than its grade or quality. Most real property which is held for productive use in a trade or business or for investment will qualify. Any real property will qualify for any other real property. Raw land, office buildings, shopping centers, retail stores, apartment buildings, farms, factories and even a leasehold interest of 30 years or more will qualify as like kind property.
Who Should Consider an Exchange?
Any taxpayer who has recognizable gain in qualifying property on which they will pay federal capital gains tax. An exchange offers the opportunity for an investor to reinvest the federal capital gains that would normally be paid to the IRS. If you are considering selling property and reinvesting in like-kind property, consult your tax advisor to determine if you should complete this transaction through the use of a tax deferred exchange.
What Property is Not Eligible for an Exchange?
Stocks, bonds, notes, interests in a partnership, shares in a corporation, certificates of trust, choses in action, foreign real property, primary residences, second homes, personal vacation property, property held for resale and inventory are examples of property not eligible for §1031 treatment.
What is a Qualified Intermediary?
The taxpayer’s use of a Qualified Intermediary (“QI”) is a safe harbor under the Regulations. An Exchange must include the sale of relinquished property and the purchase of replacement property using a qualified intermediary. The QI will prepare all documents for the exchange, hold the exchange proceeds and purchase the replacement property for the taxpayer. The IRS allows for direct deeding to avoid duplicate transfer taxes.
Who May Serve as a Qualified Intermediary?
The Regulations indicate that any party not disqualified under the code may act as your intermediary. Disqualified parties include the taxpayer or any lineal descendants of the taxpayer, an agent of the taxpayer (realtor, attorney, tax advisor, accountant, employee, etc. who represented the taxpayer within the two years of the taxpayer disposing of the relinquished property) or controlled business entities.
Why Use Eastern Equity Exchange Corp. as a Qualified Intermediary?
Eastern Equity Exchange Corp. is a Qualified Intermediary as defined under IRC Section §1031 with substantial experience handling §1031 tax deferred exchanges. We facilitate real property exchanges nationally. Eastern Equity Exchange Corp. provides prompt, professional service because meeting your business needs is our primary goal.
What is Boot?
Any property or other consideration not “like kind” in an exchange. Boot is any cash received by the taxpayer and any debt the taxpayer is relieved of may be recognized gain or “boot”. The taxpayer may deposit additional cash for the acquisition of replacement property to offset debt relief. However, debt assumed on the replacement property will not offset cash received from the relinquished property.
This information is made available as a courtesy and should not be construed as legal or tax advice.
Eastern Equity Exchange Corp.
Exchange Terminology:
Exchangor- The common term used for the entity or individual who wishes to participate in a §1031 tax deferred exchange.
Qualified Intermediary – Also known as a Facilitator or Accommodator, is the party who transfers property and receives proceeds.
Relinquished Property – The property which the Exchangor currently owns and is going to exchange.
Exchange Credit– The funds received from the transfer of the Exchangor’s relinquished property.
Replacement Property – The property which the Exchangor acquires in the exchange.
Like Kind Property– Replacement property acquired in an exchange must be of “like kind” to the property being relinquished. All real property is of like kind, regardless of whether it is improved or unimproved, and regardless of the type of improvements.
Boot – Non like kind property received by the Exchangor such as cash or a promissory note. Boot is taxable.
This information is made available as a courtesy and should not be construed as legal or tax advice.
Eastern Equity Exchange Corp.
Exchange Deadlines
Identification Period
The taxpayer must identify replacement property(ies) within 45 days from the date of the first relinquished property closing by sending a written document signed by the taxpayer and delivered, within the Identification Period, to any person involved in the exchange. According to the Regulations, the replacement property must include an unambiguous description. Replacement properties may be listed by legal description, street address, or distinguishable name.
Exchange Period
The Exchange must be completed by the earlier of: 1) 180 days from the date of the first relinquished property closing; or 2) the due date of filing the Taxpayer’s federal income tax return, together with all extensions, for the year the first relinquished property was transferred.
Identification Rules
Section §1031 regulations allow you to choose a replacement property by using ONE of the following three rules:
3 – Property Rule:
Identify up to three (3) properties without regard to their fair market value
200% Rule
Identify any number of properties as long as their combined fair market value does not exceed 200% of the fair market value of all relinquished property.
95% Rule
Identify any number of properties regardless of their aggregate fair market value, provided 95% of the value of the identified properties are acquired before the end of the exchange period.
This information is made available as a courtesy and should not be construed as legal or tax advice.