1031 Exchange Blog

1031 EXCHANGE GENERAL

10 Ways to KILL a 1031 Exchange

10/28/20

Don't get caught by the grim reaper. The 1031 exchange regulations are designed to prevent people from "tricking" their way into ...

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When it comes to conducting a safe-harbor 1031 Exchange, there's a set process that must be followed in order to stay clear of the grim reaper. The regulations impose a set of rules ensuring you can’t ‘trick” your way into an exchange. The safe-harbor guidelines provided by the Internal Revenue Code reward you with a “treat” by allowing a deferral of taxes on the gain of your investment and allowing you to properly reinvest into a like-kind property. This allows small and medium sized businesses to move, grow and diversify.

In honor of 10/31, the best date on the calendar in our opinion, we decided to have a little fun and play around with the top ten reasons an exchange might fail—with an added Halloween twist.

Number 10: Identify after midnight on the 46th day

The period of time allotted for identifying replacement properties is 45 days from the sale of the relinquished property. This period of time is known as the identification period. In general, this deadline cannot be extended.

Number 9: Allow a vampire to exchange his personal coffin for a vacation coffin

1031 exchanges are limited to real estate that is intended for business use or investment. In the case of most personal and vacation homes, a 1031 exchange would not be permissible. There are, however, some circumstances in which a personal residence or vacation property could be eligible.

Number 8: Claiming that real property in Pennsylvania is like-kind to real property in Transylvania

1031 exchanges are limited to properties that are both located within the United States. This includes some, but not all US Territories.

Number 7: Pushing 1031 as simply an avoidance of a “DEATH TAX”

1031s are never an avoidance of a tax. It is a deferral of gain recognition allowing for continuity of investment. In fact, studies have shown that 88% of properties involved in a 1031 exchange are sold in a taxable transaction, and about a third of transactions have some taxable boot received at the time of sale (Reference recent FEA post).

Number 6: Selling to or buying property from Deceased family members <img alt="haunted cemetery scene" src="/sites/default/files/files/severed-hand-V4C6FE3.jpg" style="margin-left:20px; margin-right:20px; width:250px; height:167px; float:right" />

An informed Qualified Intermediary, like Accruit, can guide you through the rules when it comes to exchanging your property. Exchanging with a family member MAY jeopardize your entire exchange. When it comes to related parties, Congress added an amendment to Section 1031 in 1989 to stop abuse that was happening whereby investors were exchanging with related parties as an effort to skirt the rules. (link to: https://www.accruit.com/blog/1031-tax-deferred-exchanges-between-relate…) There are very few exceptions to this rule, so it’s important to be aware or your exchange could end up in a graveyard.

Number 5: Exchanging your mausoleum for a hearse

As of 2017, personal property no longer qualifies for like-kind exchange. Previously, property such as vehicle fleets, construction equipment, or even airplanes were eligible to exchange, as long as they were like in kind (i.e. a plane for a plane, or a tractor for a tractor). With the elimination of personal property, only real estate is eligible for 1031 exchange. However, all real estate is like-kind to other real estate, which means you can exchange your mausoleum (commercial building) for a cemetery (raw land).

Number 4: Thinking your abnormal deranged brother with a cue ball as an eye is your QI

A 1031 exchange requires the use of a Qualified Intermediary (QI), such as Accruit. If the taxpayer is in receipt of funds following the sale of their relinquished property, this becomes a taxable event, and the exchange fails. The QI must not be related to the taxpayer, and they may not use their Realtor®, attorney, or accountant to hold funds either.

<img alt="haunted house on a hill with ominous skies" src="/sites/default/files/files/abandoned-house.jpg" style="margin:0px 20px; width:251px; height:167px; float:left" />Number 3: After identifying a property, claim it is haunted to get your exchange funds returned early

Once an exchange has started, the regulations are very strict as to when funds are allowed to be released to the taxpayer. Barring the occurrence of a limited and specific set of circumstances, funds are held by the QI until the completion of the 180-day exchange period (link to https://www.accruit.com/blog/early-release-exchange-funds-possible-unde…)

Number 2: Insisting the form you file with the IRS to claim your LKE is Form-666, not 8824

Following the completion of an exchange, the taxpayer will receive a 1099 for the amount of interest that was accrued on the exchange deposit. This should be reported as income, and the exchange transaction is reported to the IRS on form 8824.

And the number 1 way to KILL a 1031 exchange: Comingle your exchange funds with your Halloween candy (we're officially terrified)

When selecting a QI, not only should the right QI adhere to industry standards of segregated accounts, but your QI should also inform you that there are some states that mandate how exchange funds should be held. Don’t be fooled by a low-cost QI wearing a trusting mask. Not for your 1031. If the offer just sounds too good to be true, BE SCARED—be very, very SCARED.

Have a happy and successful 1031 day!

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10 Ways to KILL a 1031 Exchange

10/28/20

Don't get caught by the grim reaper. The 1031 exchange regulations are designed to prevent people from "tricking" their way into ...

The Myth of the 1031 Exchange Cooperation Clause

section 1031

10/19/20

Over the past 100 years, Section 1031 has grown and evolved. Regulations have been added such as creating the function of the ...

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In this post, we will take a brief look into the evolution of Section 1031 to show why it was critical along the way to make use of an “Exchange Cooperation Clause” and why, as the rules changed over time, such use is no longer necessary.

<h2>The Starker case</h2>

Section 1031 made its way into the Tax Code in 1921, nearly a hundred years ago. At that time, until the mid-1980s, the sale and purchase were thought to need to take place “simultaneously”, after all, isn’t that the commonsense definition of a trade between two people? Apparently not. Beginning in the late 1970s and continuing into the mid-1980s, in the landmark case of Starker vs. U.S., it was determined by a Federal District Court in California that there did not appear to be any requirement in the plain language of Section 1031 of simultaneity.

<blockquote>
“No gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or for investment”.
</blockquote>

This seemingly innocuous ruling opened up a Pandora’s Box of opportunity, not to mention confusion. The period of time for completing the trade with his buyer in the Starker case was five years. In 1986, shortly after the decision came out, Congress chose a legislative fix. It agreed that Section 1031 did not require the exchange of the properties to take place at the same time but decided to limit the open ended duration to complete the trade of the one for the other to 180 days. Essentially that limited time period still allowed the two transactions to be close enough in time to be considered to be tied to one another. But anything of a longer period simply broke the link between the sale and the purchase into unrelated (for tax purposes) transactions.

<h2>Identification and purchase period to qualify for 1031 exchange</h2>

As for the opportunity presented, taxpayers had <a href="https://www.accruit.com/blog/what-are-rules-identification-and-receipt-…; target="_blank">45 days to identify potential properties and 180 days to close on one or more of the properties</a> designated. This was much easier than trying to pull together a sale and a purchase at the same time. Instead of being a somewhat little used provision to defer tax, exchanges began to flourish as a result of the extended window to complete the exchange.

But practical problems abounded. One of the biggest problems was what to do with the buyer’s funds during the interim period between the sale and purchase? Section 1031 still required an actual exchange between the taxpayer and the buyer. If the seller took the funds and applied them within 180 days, that was not sufficient. The moment the taxpayer received the funds, the matter became a taxable sale whether or not new property was acquired within the time limits. It was not akin to the old rules where you could get deferral on the sale of a personal residence if you bought a new one within two years. One solution was to allow the buyer to retain the funds with the contractual obligation to use them to buy the new property once the seller was ready to do so. That has so much obvious risk that it doesn’t have to be explained.

Creative lawyers at the time came up with an effective solution. Keep the exchange relationship open between the taxpayer and buyer but place the buyer’s purchase price into a trust account with a third party to keep it out of the taxpayer’s receipt. This also had the benefit of keeping it out of the buyer’s possession or control. A name quickly followed for this procedure and it was affectionately called a Starker Trust!

Now we are getting close to the point of this blog. Starker Trusts could be fifteen pages long and filled with legalese. From the buyer’s standpoint, he or she saw the property listed for sale and negotiated a deal. The buyer came to closing with the applicable funds. However, in the case of a seller doing an exchange, at closing the seller (or seller’s lawyer) would ask the buyer to enter into the Starker Trust for the seller’s benefit. But the buyer would often balk. Sometimes there was simply bad blood between the parties by the time of closing. Other times buyers were reluctant generally to get involved in a tax matter that did not otherwise involve them. It was not unusual for the buyer to agree only if the buyer’s lawyer read and approved it and the seller agreed to pay the attorney fees.

<h2>What is an Exchange Cooperation Clause?</h2>

The only way the seller could obligate the buyer to sign the necessary agreement was to provide for that buyer’s obligation in the body of the purchase/sale agreement. Hence a clause began appearing in contracts for this purpose requiring the buyer to execute the Starker Trust agreement. That became know as the Exchange Cooperation Clause and it was good policy at the time.

In regard to the Pandora’s Box mentioned above, many unresolved issues arose pertaining what could, and could not, be done for a seller to attain exchange status. These included such issues as:

<ul>
<li>Who could retain the benefit of the interest accrued on the Starker Trust deposit</li>
<li>Who was eligible to hold the funds in the Starker Trust</li>
<li>Were there other ways to secure the buyer’s obligation to provide replacement property to the taxpayer</li>
<li>If the taxpayer picked out new property for the buyer to acquire to trade back to the taxpayer, did the buyer have to come into the chain of title</li>
</ul>

<h2>Where does the Qualified Intermediary come in?</h2>

In response to these questions and many more, in 1991, the 1031 Treasury Regulations were issued to provide some guidance. At the heart of the Regulations was the introduction of a new player within the exchange, namely the Intermediary. Certain persons in an agency relationship with the taxpayer were “disqualified” from acting as the intermediary but anyone else was deemed “qualified”. Hence the term Qualified Intermediary (QI) came into being. This is what gave rise to the many exchange companies, such as Accruit, that exist today.

The main function of the QI was to stand in the shoes of the buyer as a party with whom the taxpayer could effectuate an exchange. Through a series of steps set forth in the regulations, for tax purposes, the taxpayer was selling to the QI (who caused the property to go the buyer) and the QI acquired replacement property from the seller and transferred it to the taxpayer. As a result, an exchange was deemed to have taken place between the taxpayer and the QI. So, the buyer was not a party to the seller’s exchange transaction and had no need to cooperate. The regulations also set up several options in regard to holding the funds during the transaction including letting the QI hold them. This is what is typically done in an exchange today.

<h2>Is an Exchange Cooperation Clause necessary?</h2>

So, for nearly thirty years, there has been no requirement for the buyer to cooperate in the seller’s tax transaction, but old habits die hard. In today’s world, due to the series of steps referred to above, the seller does have to assign the rights under the sale contract to the QI and notify the fact of this limited assignment to the parties to the contract. The parties receiving the written notice (mainly the buyer and later the seller) are not required to agree, cooperate or even to sign acknowledging receipt. They often sign receipt as a courtesy, but it is not required by the regulations. The same thing must be done with regard to the replacement property contract. This assignment in not tantamount to an outright assignment of the whole contract to a third party, rather it is just the assignment of the seller’s rights (but not the obligations) in the contract for purpose of getting tax deferral. As a matter of general law, if a contract has no restriction against assignment, and most don’t, the person has the legal right to make an assignment. However, if a contract, or state law, included a restriction on assignment, even just of the “rights” to treat it as an exchange, a counterparty in the sale or purchase agreement might be able to thwart this as a technicality. As a result, in today’s contracts, even when there is no restriction against assignment, just to be safe, a clause is usually found in the preprinted contracts or added, along the lines as follows:

<blockquote>
“Each of the parties hereto may assign its rights (but not its obligations) to a Qualified Intermediary as defined in the IRC Code Section 1031 Treasury Regulations. Said exchange will be closed without cost, liability or delay to the non-exchange party.”
</blockquote>

In summary, as the rules evolved under IRC Section 1031 since its inception, at one time it was very important to have a clause in the sale contract requiring the buyer to “cooperate” in the seller’s exchange transaction. One of the primary changes to the need for the buyer to participate was in the heart of the 1991 Treasury Regulations substituting in a third party, namely the Qualified Intermediary to remove the buyer from any need to cooperate. As a result, an “exchange cooperation clause” because irrelevant. To this day people tend to put emphasis on this clause because it was necessary so many years ago. In the modern era, post-1991, the only requirement for a taxpayer in this regard is to assign the rights under the contract and provide written notice of the fact. There is no requirement for the buyer to cooperate in any way.

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The Myth of the 1031 Exchange Cooperation Clause

section 1031

10/19/20

Over the past 100 years, Section 1031 has grown and evolved. Regulations have been added such as creating the function of the ...

No Gain, No Exchange?

09/22/20

We are often asked to help a taxpayer understand the pros and cons of structuring a Section 1031 tax-deferred exchange. Sometimes ...

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We are often asked to help a taxpayer understand the pros and cons of structuring a Section 1031 tax-deferred exchange. Sometimes during these conversations, the taxpayer indicates that they have little or no gain on the current property, and then jump to the conclusion that they have no need to structure a 1031 exchange.

Alas, they often have reached the conclusion in haste, without weighing all of the tax facts.

Assuming that this is the taxpayer’s first investment property, on which the taxpayer has little or no capital gain, the depreciation recapture taxes is often overlooked. Investment real estate is depreciated over its tax life (commercial investment property is depreciated over 39 years, and residential investment property over 27-½ years), and upon sale the depreciation is “recaptured” and taxed at 25% at the Federal level, plus state and local taxes. For example, Joe bought a residential investment property ten years ago for $100,000. During those ten years, he has taken approximately $3,636 in depreciation each year, for a total of $36,363 in depreciation. Upon sale, he will have to pay Federal depreciation recapture tax of $9,090. Even if Joe sells the property for $100,000 – no capital gains – he will have to pay this tax, plus potential state and local taxes.

Now assume that this is Joe’s third investment property, the result of two prior 1031 exchanges. Further assume that he bought his first property for $100,000 and sold it ten years later for $200,000. He then acquired Property 2 for $200,000 as part of a successful 1031 exchange, holding it for another ten years before selling it for $300,000. Joe is now selling Property 3, which he bought for $300,000 ten years ago, but he is selling it for the same $300,000. Notice that Joe has $200,000 in capital gains ($100,000 from each of the first two properties), plus the depreciation recapture on each of the three properties $36,363 in depreciation on each property, for a total of $109,089. Even though Joe has no capital gains on his current property, without a new 1031 exchange he will have to recognize $200,000 in capital gains from the first two properties, plus the recapture tax on over $109,000 in depreciation. Capital gains taxes on the $200,000 (20% Federal, plus state) and depreciation recapture taxes on the $109,089 (25% Federal, plus state and perhaps local) could easily exceed $100,000, depending on where Joe resides.

Another variation to consider is if Joe fell behind on his mortgage. To satisfy the lender, he provides a Deed in lieu of foreclosure. If his investment Property 1 has a current fair market value of $100,000, and debt of $30,000 he has backed himself into a new corner. He still has the depreciation recapture taxes previously discussed, but now he also has net debt relief of $30,000. This mortgage boot would be taxed similar to capital gains taxes, at the Federal, state, and local levels.

Remember, a properly structured 1031 exchange can fully shelter both the depreciation recapture and capital gains taxes, at the Federal level, and usually at the state and local level as well.

As always, taxpayers are encouraged to discuss their plans with their tax and legal advisors before they embark on the path towards sale of the investment property, and to engage the services of Accruit before closing on the sale of the relinquished property as well.

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No Gain, No Exchange?

09/22/20

We are often asked to help a taxpayer understand the pros and cons of structuring a Section 1031 tax-deferred exchange. Sometimes ...

Ranch Investor Podcast: What are you going to do with all that money?

09/21/20

On this episode of the Ranch Investor Podcast, Accruit Managing Director Max A. Hansen discusses how to use 1031 exchange when ...

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On this episode of the <a href="https://mtlandsource.com/podcasts/what-are-you-going-do-all-money" target="_blank">Ranch Investor Podcast</a>, Accruit Managing Director Max A. Hansen brings his 40+ years of experience as a 1031 exchange expert to the table in discussing how to use a 1031 exchange when buying or selling ranch or farm properties.

He talks with Colter DeVries of Clark & Associates Land Brokers, LLC and Andy Rahn of Montana Land Source, LLC, two energetic entrepreneurs in the real estate industry, about creating an exit plan when selling agricultural property, deferring capital gains taxes through the use of 1031 exchange, as well as how to leverage a real estate portfolio so dollars can go as far as possible.

Click to listen in your browser or find the episode on your favorite podcast app.

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Title:

Ranch Investor Podcast: What are you going to do with all that money?

09/21/20

On this episode of the Ranch Investor Podcast, Accruit Managing Director Max A. Hansen discusses how to use 1031 exchange when ...

To Drop and Swap or Swap and Drop?

1031 drop and swap explained

09/16/20

On a regular basis, we respond to the following scenario: Members of a partnership or LLC want to sell a ...

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That is the question.

We probably answer at least one phone call or email every day regarding how members of a partnership, limited liability company or other form of partnership who want to sell a property and go their separate ways may do so and still use a <a href="https://www.accruit.com/property-owners/1031-exchange-explained" title="Start an Exchange with Accruit"><acronym>1031 exchange</acronym></a>. Typically, we find out about the issue when the closing of the sale of the property owned by the partnership is looming on the near horizon. In this situation, the distribution out of the partnership to the partners of pro-rata tenancy in common interests is not advisable.

The issue is largely due to the fact that there is no clear test of what is an acceptable “drop and swap” 1031 exchange holding period. When partners consider a drop from their partnership <acronym>interest</acronym> into a tenancy in common interest in the relinquished property and then swap or exchange out of the property, there is a danger if the “drop” takes place shortly before the closing, the IRS could disallow the exchanges into replacement properties. The IRS has reasoned that the tenancy in common interests in the relinquished property were not “held” long enough as investment or business use property, which is an <a href="https://www.accruit.com/blog/1031-exchange-holding-period-requirements&…; target="_blank">essential requirement for the exchange</a>.

The conventional wisdom— and in most cases, the safest approach—is to have the partnership proceed to closing of the old property and have Accruit, as the Qualified Intermediary, receive the exchange value per the 1031 Tax Deferred Exchange agreement. After the closing of the relinquished property, the partners will identify replacement properties which may be different types, i.e. multi-family residential, commercial/warehouse or any other property that is investment or business use property. Accruit will then acquire the various replacement properties on behalf of the partnership/taxpayer. The partners then agree to a special allocation within the partnership to track the profits and losses for the properties and allocate them to the rearranged partner groups during the subsequent holding period. After the partnership has held the properties in that arrangement for at least a couple of years, it will then distribute the property to the partners as tenants in common or to the new partner groups as new partnerships.

Keep in mind, there are still some adventurous souls who engage in drop and swap transactions involving short holding periods after the redemption of the partnership interests in return for the tenancy in common interests that are exchanged. They have relied on a long line of taxpayer-friendly federal cases such as <a href="https://law.resource.org/pub/us/case/reporter/F2/753/753.F2d.1490.84-70…; target="_blank">Magneson v. Commissioner, 753 F.2d 1490</a> (9th Cir. 1985). Practitioners have repeatedly asked the IRS to soften its position regarding the requisite holding period and the step transaction doctrine, but the IRS has refused to do so. This continued attitude toward drop and swap situations does not provide much comfort to taxpayers or their professionals.

The California Franchise Tax Board (FTB) is an example of a state agency that has taken an even more aggressive position on the drop and swap issue by disallowing them and those decisions have generally been upheld. However, the FTB recently lost on appeal when the taxpayer-appellant’s attorneys successfully argued that not only did the timing of the TIC transfers not matter, but the FTB’s assertion that these pre-exchange transfers “lacked substance” was without merit. Take a look at the case entitled <a href="https://ota.ca.gov/wp-content/uploads/sites/54/2020/03/18011715_Mitchel…; target="_blank">In the Matter of the Appeal of Sharon Mitchell</a> (OTA Case No. 18011715) (January 18, 2020). Admittedly, when looking at these transactions either through the lens of Federal or state law and none of the partners are cashing out but doing exchanges, albeit into different property , the continuity of investment argument should be persuasive.

The answer to the opening question, unfortunately, is there is no clear test for the period of qualified use prior to a sale and exchange. It’s always important for anyone stuck in a partnership and contemplating an exchange with partners of diverging interests to talk to their tax advisors as soon as possible to avoid the pitfalls outlined above.

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To Drop and Swap or Swap and Drop?

1031 drop and swap explained

09/16/20

On a regular basis, we respond to the following scenario: Members of a partnership or LLC want to sell a ...

1031 Exchanges & State Tax Law Considerations

08/19/20

While IRC §1031 is specific to deferral of capital gains tax on a federal level, some states will also allow the ...

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A successful like-kind exchange of real estate under IRC §1031 <a href="https://www.accruit.com/services/like-kind-exchange/forward-exchanges-r…; target="_blank">defers capital gains tax and depreciation recapture on a federal level</a>. Nevertheless, the ability of a taxpayer to defer taxation on the state level depends on the state in which the real estate is located, among other considerations.

Certain states, like Florida and Texas, have no state income tax. Consequently, the exchange transaction does not need to be reported on the state return as it would on the federal reporting form, <a href="https://www.irs.gov/pub/irs-pdf/i8824.pdf" target="_blank">IRS Form 8824</a>. Most states follow the federal statute and thus defer the state tax on the gain. An outlier is the Commonwealth of Pennsylvania, which does not recognize <a href="https://www.accruit.com/property-owners/1031-exchange-explained" title="1031 exchanges">1031 exchanges</a>. Tax must be paid on a state level in Pennsylvania after completion of a 1031 exchange. However, that doesn't necessarily mean that a 1031 exchange isn't the right choice for a Pennsylvania taxpayer. Even though the taxpayer would still have to pay state taxes on the capital gain in Pennsylvania, federal taxes would be deferred.

Further, certain taxpayers may have to satisfy withholding or exemption reporting requirements in the following states:

<ul>
<li>Alabama</li>
<li>California</li>
<li>Colorado</li>
<li>Georgia</li>
<li>Hawaii</li>
<li>Maine</li>
<li>Maryland</li>
<li>Mississippi</li>
<li>New Jersey</li>
<li>New York</li>
<li>North Carolina</li>
<li>Oregon</li>
<li>Rhode Island</li>
<li>South Carolina</li>
<li>Vermont</li>
<li>West Virginia</li>
</ul>

California, specifically, has a unique state tax statutory scheme for exchanges. Effective January 1, 2020, California requires tax withholding for specific real estate sales in which the gain or loss from the exchange was not recognized for federal income tax purposes (such as in the case of a failed exchange) because of IRC §1031 in order to address the avoidance of income taxes otherwise due and payable to the state when the gain or loss from the property is ultimately recognized. No withholding is required on the initial transfer where the seller certifies on California Franchise Tax Board (FTB) Form 593 that the transfer will qualify as a:

<ul>
<li>Simultaneous Like-Kind Exchange. However, if the seller/transferor receives proceeds (including excess debt relief) or non-like-kind property from the sale (boot) in excess of $1,500, withholding is required at 3 1/3 percent of that amount, unless an election is made to use the alternative withholding calculation on FTB Form 593;</li>
<li>Deferred Like-Kind Exchange. If the seller/transferor receives any proceeds (including excess debt relief) or non-like-kind property from the sale (boot) in excess of $1,500, withholding is required at 3 1/3 percent of that amount, unless an election is made to use the alternative withholding calculation on Form FTB 593; or</li>
<li>Failed Exchange. Notwithstanding a certification by seller/transferor on FTB Form 593, if the exchange fails, does not occur, or does not meet the IRC §1031 requirements, the qualified intermediary or exchange accommodator must withhold at 3 1/3 percent of the sales price, unless an election is made to use the alternative withholding calculation on FTB Form 593.</li>
</ul>

In order to comply with the California Real Estate Withholding Requirements, the seller/transferor is required to promptly provide any and all information, documentation or amounts required to be paid on FTB Form 593-V.

<img alt="clawback states" src="/sites/default/files/files/Claw%20Back%20Rule%20States.png" style="width:300px; height:173px; margin-left:40px; margin-right:40px; float:left" />Moreover, Section 1031 claw-back rules apply in the following states:

<ul>
<li>California</li>
<li>Massachusetts</li>
<li>Montana</li>
<li>Oregon</li>
</ul>

When relinquished property is sold and replacement property purchased in another state, the aforementioned states claw-back the gain when the replacement property is eventually sold. Each of the four states has its own state-specific claw-back rules.

Another state tax consideration is whether the real estate is located in a community property state. In a community property state, real estate and other assets owned by married spouses is considered marital property. Married spouses are not considered separate taxpayers for real estate that they own together. This is helpful information for taxpayers to know, for example, in cases where married spouses want to form an LLC for their exchange; that LLC, though having both spouses as members, would still be considered a disregarded entity in the following nine community property states:

<ul>
<li>Arizona</li>
<li>California</li>
<li>Idaho</li>
<li>Louisiana</li>
<li>Nevada</li>
<li>New Mexico</li>
<li>Texas</li>
<li>Washington</li>
<li>Wisconsin</li>
</ul>

Lastly, the rules dealing with the structure of 1031 transactions and requirements of persons or entities engaged in the Qualified Intermediary services for taxpayers vary in several states. For example, the 1031 exchange may need to be set up through a qualified escrow holder or qualified trustee, or the Exchange Facilitator may need to maintain a fidelity bond in order to perform the exchange in the state. The following states have enacted legislation concerning the structure of 1031 exchange transactions and those persons or entities facilitating them as Qualified Intermediaries or Exchange Facilitators:

<ul>
<li>California</li>
<li>Colorado</li>
<li>Idaho</li>
<li>Maine</li>
<li>Nevada</li>
<li>Virginia</li>
<li>Washington</li>
</ul>

A taxpayer is well served by <a href="https://www.accruit.com/blog/1031-exchange-tips-selecting-right-qi" target="_blank">finding an exchange company</a> that is well versed in the complexities surrounding 1031 exchanges and the tax law considerations associated with them. As with all matters concerning 1031 exchanges, it is highly advisable to consult with an independent professional regarding the legal and tax consequences associated with any proposed transaction.

To learn more about the considerations for deferral state tax, we offer a free, no obligation consultation with one of our subject matter experts.

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Title:

1031 Exchanges & State Tax Law Considerations

08/19/20

While IRC §1031 is specific to deferral of capital gains tax on a federal level, some states will also allow the ...

1031 EXCHANGE GENERAL

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